Frame Decisions as Best Outcomes for Owners
Current Generation Perspective: I want my first-born to be CEO, but I’m not sure they’re equipped to handle it. How do I make this decision?
Next Generation Perspective: All of my siblings are fighting over who gets to be the next leader, and it’s unclear what the best decision is for the company.
Once everyone has adopted the mindset of prioritizing ownership over management, it is important to have planning conversations and ultimately make decisions about how to achieve the best outcomes as owners. For example, when examining how important it is that management, board members and operating roles are filled by family members, think through the implicit trade-offs. A person who is a family member may have a greater commitment to the business, but do they have greater competence? In certain situations, a family may be insistent on hiring a family member as successor. In other cases, even where family members are involved, the next generation may choose to participate in the business in another capacity – as board members, for example – and hire an outsider to take over management. No matter the situation, this is not an easy decision to make, so it is key to approach it in terms of what will deliver the best outcome for owners, particularly when there are multiple family members who have an interest in active employment.
Get Specific About Roles and Requirements
Current Generation Perspective: How do we choose the next CEO among all of the next generation members? Should we just go with the oldest member of the generation?
Next Generation Perspective: I want to be CEO, but I have no clue what I need to go through to get there. Is it a game of favorites, or is there actual criteria I need to meet?
In order to ensure that everyone is on the same page about the jobs that need to be done and the requirements involved, it’s important that family business owners formalize and communicate the objective process through which they will choose individuals to fill vacant executive roles, as well as the skills and requirements that candidates must meet. Ideally, a retiring CEO or other executive has already gone through the process of outlining their role and forming a job description for successors (as outlined in “Thriving After Change: Preparing for Business Transition”), and the family can leverage this work. Exceptions should generally not be made, and if they are, the rationale for the exception should be made clear to all. Mapping out a process together that clearly states how you will choose successors, and that involves input from several people, helps foster buy-in among all generations. It is important to make clear that the evaluation process is a legitimate one that everyone – family and nonfamily – must go through. For example, next generation owners who are interested in working in the business should be evaluated by the leadership team (family and nonfamily) to ensure an objective evaluation. For leadership roles, it is often advisable to put the next generation through an interview process with an outside recruiter just as you would in a search for an outsider. Having a clear, clean process that includes input from all generations and outlines these elements is crucial for minimizing any assumptions of favoritism and emotional responses when the successor is named, which are almost inevitable in a family business.
Develop the Next Generation with Intention
Current Generation Perspective: My child does not seem ready to own this company that I grew from the
ground up. I’m worried about how to prepare them so that they don’t ruin
Next Generation Perspective: I grew up in this company. It’s in my blood. I’ll be a fine owner.
Successor readiness is a common concern among clients. To the extent that family business owners have interest in having family members fill critical company positions, they must decide what needs to be done in order to ensure the next generation is prepared to fill those roles and meet their requirements. This is an exercise in working together to determine how the current generation can push the next generation along so that they are eventually fully prepared to assume leadership.
Owners may know who they want to succeed current executives based on the process and requirements put in place, but how can they assess whether individuals are ready? Families who have gone through the earlier steps of understanding what’s required of each role may have a better initial understanding of whether someone is prepared, and being armed with a job description or objective criteria can help alleviate some of the emotional impact around this decision. At BBH, we also have a succession readiness matrix tool that we share with clients. Completing this exercise together helps families have honest conversations about the readiness of both parties – the founder and the successor – and outlines next steps should one not be ready.