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Business Observer Monday, Oct. 10, 2022 1 month ago

How to get leadership transition right — the first time

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When a CEO or founder, finally, leaves an organization, the stakes are high for the new leader. Rules and structure to the succession are key.
by: Denise Federer Contributor

You’ve made the decision to retire. You’ve chosen a successor. Both those decisions were difficult to make, but you made them. But now comes the real hard part — actually transitioning the business to new leadership in a way that serves the new leader and the company you’ve built and nurtured over time.

And as you might imagine, it’s not as simple as sharing some operational information on a Google doc. There are a lot of factors at play — both operational and emotional, you’ll need to consider. And there’s also a lot of work to be done. That’s why as a family business consultant, I always suggest a succession period of at least five years. But let’s start with the work. Below are two major challenges of leadership transition — and two solutions that will lead to a successful succession for your business.

The Challenge: The Emotional Side of the Family Business

Even after you chosen a successor, there may still be emotional issues to work out that will be essential to ensuring the business runs smoothly after you leave, and that your successor (especially if that person is your child) can find both success and happiness as the business leader. In many cases, the new leader of the business will be only one of your children or other family members working in the business, which can create issues for a variety of reasons. Family members may have different working styles, expectations and skillsets. In some cases, jealousy is at play. One need only to watch an episode of HBO’s “Succession” to see that dynamic — albeit in sometimes over-the-top dramatic fashion. Your family members, regardless of whether they are the leader of the company or an employee, can feel “yoked” to each other which can cause emotional issues. Just like a family, a family business can be emotionally complicated.

The Solution: Family Governance

A family governance agreement is akin to a constitution — it sets the ground rules for how decisions will be made, how conflict resolution will be handled and essentially the rules of how the business will be run. If done correctly, a family governance structure can all but eliminate the resentment that sometimes builds when family members are working together in a business. In my work as a family business consultant, I help my clients come together to create these rules — a process that, if done right, should take at least six months to one year. Getting buy-in from the entire family is key, so you can all have a solid understanding of how things will work going forward. The best way to start the process is by defining what the business is — what is the vision statement, where do all agree the business should go? I like to include a history of the family and family business to help guide the direction of the future. Once all have agreed, you can start working on the rules. Family business governance isn’t just a good idea, it’s essential to ensuring the family business and the legacy stay intact.

The Challenge: Separating the Business from the Person

Those who have founded and run a business can sometimes assume everyone else in the business thinks the same way they do, but that’s rarely the actual case. Business owners frequently underestimate how much of the essential nuances of the business they and they alone know. It’s often been said that the more important a leader is to a business, the less valuable the business is. If you haven’t shared everything you know about the business with your successor, he or she is doomed to fail.

The Solution: The Brain Drain

To ensure your business continues to succeed in your absence, you must conduct an in-depth, comprehensive knowledge transfer that happens over time. You must take the time to do a full “brain drain” and empty out all your knowledge about the business to your successor. But it’s not just about information. You must be an active mentor. Don’t just tell your successor how you do it — teach them to think in the way that you do. Show them situations where you had to make a difficult decision and what you learned through both success and failure. And make it formal — set official time aside for mentorship activities each week and each month. You’ll also want to help the next generation establish priorities — give them examples of urgent issues, and what things put the company at the greatest risk. Prioritizing is a challenge for any business leader, especially a brand new one.

You can’t clone yourself, but if you put in the work, you can ensure much of what you created and the way you do things will live on through your children, and children’s children.

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