STORY INLINE POST
A succession denotes continuity, a pattern that follows specific rules between the successor and predecessor . In a family business, a successful succession is very rare. The founder and his sons may share values and the same DNA, but not necessarily the same mindset or business skills; the lack of a professional succession plan creates the perfect storm, increasing the probability of failure.
At Clever BoD, we understand that succession planning is a complex process that requires careful consideration and definitions among generations to ensure a company's continuity and long-term success from one generation to the next. The firm has helped many family businesses avoid struggles with the succession process, tackling common mistakes on time, and leading projects that incorporate proper planning and guidance.
In this article, we will share the most common mistakes made by family businesses in the succession process, or what we call “succession capital sins,” and provide insights into how to avoid or resolve them.
Capital Sin 1: Delaying Succession Planning
The personality of the founder can play a significant role. For instance, a founder who has a solid attachment to their position as a leader may resist discussing succession planning, even with their successor. This type of founder feels that talking about a successor means acknowledging their eventual departure — and loss of power — which can be a difficult realization.
Another personality type that can contribute to delaying succession planning is the founder who is hesitant to confront their mortality, is overly confident in their abilities, and believes that they will continue to lead the company for many years to come. This can lead to complacency and a lack of urgency in planning for future leadership transitions.
On the other hand, a proactive and forward-thinking founder may be more likely to initiate succession planning early on. They may recognize the importance of preparing for the future and want to ensure that the business will continue to thrive after their departure, bringing in the next generation with insufficient business knowledge or leadership experience.
By recognizing the role of founder personalities in delaying succession planning, family businesses can take proactive steps to address any emotional or psychological barriers preventing the founder from engaging in the process. This should involve working with a business consultant or family governance adviser who can provide support and guidance in navigating these sensitive conversations and help to define the right timing to start the process and the proper actions to ensure a smooth transition of power, such as identifying potential candidates, developing their leadership skills and experience required for the transition. Pass the baton.
Capital Sin 2: Lack of a Compass
Perspectives between generations are a common source of conflict; they could potentially cause significant issues during the succession process. Differences between the founder and successor are typically originated when there are two business visions, and companies cannot be led to two different places at the same time. It may sound obvious, but unfortunately, this mistake creates two company cultures: the old way, and that of the next generation. Frustration with the new leader and confusion in the chain of command within the business are symptoms of this sin.
Mindset differences between generations could easily be aligned using the one-page strategy model that contains a clear definition of purpose, aspirations, business priorities, and expected outcomes. This pragmatic tool would help the successor navigate emotions and subjectivity among generational perspectives, letting the founder define with his successor the expected future and goals for the family business and identifying the milestones that will become the path to follow by the successor.
A formal one-page strategy can help identify the skills and attributes that are essential for the new leader to possess, as well as the areas of the business that require the most attention and focus.
Capital Sin 3: Lack of Clarity in Roles and Responsibilities
The root cause of a lack of clarity in roles and responsibilities during succession planning can be traced back to a need for a formal strategic plan for the family business. With a clear strategic plan, it can be easier to determine what skills set and attributes are necessary for the new leader to possess and what direction the company should take in the future.
One effective solution to address the need for more clarity in roles and responsibilities during the succession process is establishing key performance indicators (KPIs) for the successor. KPIs can help define performance expectations and provide a clear framework for evaluating success.
Family businesses should work to establish KPIs that are aligned with the company's one-page strategy. KPIs should be specific, measurable, achievable, relevant, and time-bound. They should be designed to assess performance in key areas, including financial management, customer satisfaction, internal processes, employee engagement, and innovation.
By establishing KPIs, family businesses can create a culture of accountability and transparency. KPIs can help ensure that the successor is aware of the family's expectations and can track his progress over time. Also, they can identify areas for investment or attention, helping to ensure the business's long-term success. KPIs can also provide a basis for performance evaluations.
Capital Sin 4: Failure to Identify Suitable Successors
Family businesses may need more preparation and development of family members to identify suitable successors. In some cases, the next generation may have assumed that they will one day take over the family business leadership, and need adequate training or preparation for the role. Without proper education and experience, these family members may lack the necessary skills and knowledge to lead the company effectively.
In addition, family businesses may also fail to consider external candidates who may be better suited to the leadership role. Still, a family business needs to avoid bringing a professional or external candidate into the company without the required counterweights that guarantee the successor’s behavior and decisions will be aligned with the family's values and culture and with the best interests of the family, avoiding agency conflict or Stockholm syndrome.
To overcome this challenge, family businesses must be willing to invest in a formal leadership development program that includes specialized training, coaching, and mentoring. Based on the one-page strategy requirements, this program should be tailored to each potential leader's specific needs. It should include opportunities to develop their skills in strategic planning, financial management, governance, and human capital, among others.
In addition, family businesses must actively seek external candidates with the necessary skill set, experience, and growth potential.
In conclusion, succession planning is a continuous process that requires careful consideration and collaboration among generations to ensure a family business's continuity and long-term success. At Clever BoD, we can design, create, and execute succession plans that will help you avoid these "capital sins," providing a clear pathway to succession.