Succession planning: Butteriss on human resources

 

Maybe it’s because providing for an orderly management succession seems one thing the vigorous, busy young entrepreneur can safely put off until tomorrow. Maybe it’s just unpleasant to contemplate one’s own mortality or to face up to the disappointing lack of an obvious successor among one’s associates or family members. Whatever the reason, planning for management succession is one of the issues that small business owners all too often neglect. It is a matter of governance to distinguish broad issues determining the overall constitution of a company from“operations,” its practical day-to-day functioning.

Non-family succession

Succession planning isn’t just something to be considered in the distant future when the currently youthful entrepreneur begins to consider retirement. Accident, illness, or family emergency might force anyone to make a radical change in their work tomorrow. Particularly for businesses run by entrepreneurs who keep everything in their own hands, the end is likely to follow the departure of the manager. If you are interested in seeing your business survive you, you have to consider getting a plan in place at once.

Family succession

We have all heard about the vitality of the small business sector, but even so, it may still come as a surprise to hear that there are more than one million family-owned businesses in Canada today. They generate more than 45% of the gross domestic product and a paycheque for about half of all working Canadians—that is, about 4.5 million people. Furthermore, 8% of the new jobs created are coming from family businesses. How they will operate after the founders retire becomes a question for all Canadians, involving, as it does, such a large part of the economy.

Some“family-related issues” threaten orderly succession. They include:

• Splitting the business or giving it to unsuited persons out of the desire to be fair to children.
• Assuming that children will go into the business and hence failing to develop a program to familiarize them with it and develop their interest and skills.
• Not developing corporate culture, business plans, and job descriptions that family successors understand, agree to, and acquire training and competence for.
• Allowing family dynamics to control meetings and communications that are supposedly for business purposes.
• Succumbing to financial demands from family heirs that are bad for business.

Three barriers to successful transition

• Lack of Strategic Planning
• Plans for Co-CEOs
• Weak Boards

Lack of Strategic Planning:More than two-thirds of the companies surveyed have no written strategic plan. A written strategic plan is an element of“governance.” Like a country, a firm that intends to continue through the generations requires something like a constitution, which consists of unwritten elements (for instance, institutional memory of practices and procedures) and written elements, including strategic planning documents that define targeted business sectors, achievement goals, and the like. Strategic plans and goals may be obvious to the founder/owner, but if he or she dies, their plans may die too unless they are formulated in a written document that has been developed in consultation with other key company members and with successors.

Plans for Co-CEOs:It is likely that in many cases, plans for family co-CEO successors result from reluctance to choose among family members, fear of provoking arguments, or the desire to please everyone. In other words, such plans are not really ways of creating a sensible succession plan but of avoiding the problems involved, and they spring from the“family-related issues” mentioned above.

Weak Boards:Less than half the boards of directors meet more than twice a year, the research showed, and more than two-thirds are not paid. These statistics suggest that family businesses are not building and using strong boards even though many will be called on to play a strong role when leadership changes hands.

Of course, succession does not have to be handled or facilitated by a board, and some small businesses may not even have one, depending on the nature of the organization and the preferences of the founder. But where the board is charged with a major role in succession, a weak board is unlikely to have either the commitment or the competence to direct a transition, monitor the successor’s success, and redirect or replace the successor if necessary.

Secrets of success in succession planning

• Start planning early.
• Think of the family business as an asset, not just an operation.
• Let family members have a free choice on whether or not to enter the business.
• Get professional help for the transition process.

Secrets of success in family succession planning

• Work outside the company for a long time before entering your family’s business.
• Don’t bring your kids up with the idea that they’re going into the family business.
• Use a mediator during the transition of succession.

 

Copyright© 1999 by Margaret Butteriss. All rights reserved. Published by John Wiley& Sons Canada, Inc.
http://www.amazon.ca/Help-Wanted-Complete-Resources-Entrepreneurs/dp/0471643882

 

References

Butteriss, M. (1999).Help Wanted: The Complete Guide to Human Resources for Canadian Entrepreneurs.Toronto: John Wiley& Sons. pp.207-221

Tags: governance, succession