The Power Vacuum and The Successors - Part II
The Precarious Transition -These struggles for power and prerequisites are more bombs exploding in the foundation of the business, bombs whose fuses were set long ago during the heirs' formative years. And the transition is the time the business is least able to withstand those little explosions. The power vacuum left behind by the founder is not only felt within the family. It is felt throughout the management team and outside the company, by customers, suppliers, and other people who have worked so closely with the founder for so many years.
The non-family managers,the family employees, and non-working owners have a very great vested interest in continued success and profitability of the company. Unless convinced the chief executive officer and other top family mangers are competent, they will become obstructionists, laying obstacles in the path of decisions the management makes, reluctantly carrying out orders, and putting heavy pressure on the CEO to perform to a whole set of subjective standards.
In the case of non-family managers, lack of confidence in the family at the top can lead to indolence, insubordination, ineffectiveness, inefficiency and insolence -- or departure for greener pastures.
If a viable succession plan was not put together and put in operation during the founder's lifetime, there was no way for the eventual successor to demonstrate that he or she was able to fill the founder's shoes capably and successfully, let alone that he or she is capable of carrying the company into complexities and expansions beyond even the founder's capability.
Suppliers and customers tend to see the owner-managed business as the owner manager himself. The same is true, in general, of the bank that supplies the short-term cash needs and long-term capital sources for the business. Who is this young upstart who has stepped into the founder's shoes? Will the business succeed under him?
Suppliers get nervous about who will take care of their market share in the area. Customers wonder whether they'll still get the service they're used to. Both may start to look elsewhere, in case "The Kid" doesn't work out.
This is why unplanned succession can be almost as disastrous as no succession at all.
The question for inheritors becomes so much more than one of their competence to do the job. It is no longer an entrepreneurial business. It is a successful family-owned business and it demands strong and objective input from a variety of management sources, and from the successors. The objective, outside management just doesn't suddenly happen. It comes about as part of a long-range plan. But long-range plans are seldom made and too often successors inherit an entrepreneurial business with a gaping hole where the entrepreneur should be.
Even assuming the management hierarchy is settled and accepted in advance, assuming the offspring of the founder -- and his partners, if he had any -- understand and are willing to work for needs of the business, the transition is in trouble unless the new management is ready and has the necessary help to handle problems of scale that arise with succession.
A smooth succession requires successors who possess knowledge and experience beyond that of the founder. It requires an organized team of key managers who approach their responsibilities professionally. It requires a group of competent advisors who understand the business, know and respect the successors, and are capable of piloting the business through uncharted waters ahead.
A smooth succession requires an uncomplicated and rational ownership structure, one which doesn't confuse inheritance with management. It requires accommodating heirs who can cooperate and work together. And, finally, it requires the presence and influence of a working board of outside directors -- a greater requirement, even than there was for the founder.
But most likely, the board in a family company -- while the founder is around and after he is gone -- remains a pasture for incompetence, a Siberia for the managerially senile, a cover for greed or a lever for self-interest. It's too often a place where advisors can get together, periodically and with legal sanction, to justify their existence. It's too often a device whose only purpose is to generate fictitious events to minimize tax. None of the actions of this kind of "board" has any real value in ensuring the continuity of the business it has the fiduciary obligation to protect.
Léon A. Danco, Ph.D., Founder and Chief Executive Officer of The Center for Family Business, Cleveland, Ohio, has had a distinguished career as a businessman, consultant, and educator. His seminars and lectures on the management and perpetuation of family-owned companies have received international praise and recognition. This is one of a series of articles written by Dr. Danco on family business; for further information contact him through National Driller.