How to Be a Family Business Empty Nester, Part 1: Affecting a Successful Transition to the Next Generation
March 7, 2018
Bob, 70-year-old CEO of his family’s successful manufacturing business, is excited about retiring. Dreaming of traveling with his wife and enjoying his new sports car, he’s ready to hand over day-to-day management of the business to another member of the family. But here’s the problem—several family members are jockeying for the position to succeed him. Some are adamant that the business stays out of the hands of Bob’s children. How can he keep everyone happy? Can he keep everyone happy? Are his children ready for the responsibility of running the company?
If you’re approaching retirement from your family’s business, you may be asking yourself these same questions. There are few situations confronted by a family-owned business that are more complex than the transition of leadership held by a family member. Planning a transition out of your management role also means confronting change, one of our biggest challenges as human beings. Your family members are facing significant change as well. Since change can be risky for a business, you need to protect the core asset—your family’s business—which so often represents a significant portion of a family’s wealth.
Leadership transitions often fail when goals of the business and family aren’t discussed and planned for well in advance. In fact, 43% of family firms don’t have a succession plan and only 12% last until the third generation, according to a 2016 Family Business Survey by the National Bureau of Economic Research Family Business Alliance. Lack of empathy about how this transition affects multiple stakeholders both inside the family and the business, as well as outside constituents, is a major contributor to failure. You need a transition strategy based on your company’s future, not one based on what’s been done in the past. Think about a “transition to” plan, versus a “transition from” plan. Here are some of the personal changes you must address to become a successful family business empty nester:
- Discuss life after work. Whether you’re looking forward to retirement or feeling apprehensive, it’s important to have a conversation—perhaps one guided by a trusted, independent advisor—not only to make sure you’re personally and professionally ready to retire, but that you’ve thought through and planned for the impact of your exit from the business on its operations and continued growth. If you remain CEO through the transition phase, your role should be clearly defined. Thoughtfully considering and talking through this important step is key. Once that discussion has happened, create a plan that addresses what the next steps are for you, your company, and your family.
- Understand how a new CEO affects remaining family members and—if the new CEO is a family member—how family relationships are affected. For family members still working in your business, a new CEO—whether from in or outside the family—is challenging. As with any change in leadership, team members worry about adjusting to the new CEO and how changes in the organization affects them. Family members may jockey for your position. If the new CEO is a family member, his relationship with other family members influences the transition as well. It’s important to build a go-forward plan based on strategic planning versus assumptions or entitlement. Without appropriate strategic planning for your business’s future, and the competencies required to run the business along with a clear governance structure, this can be a difficult period for your family and the business.
- Communicate with family members. Honest conversations with family both inside and outside the business is vital to retain family harmony and to frame a strategy for your business moving forward. An independent advisor can meet with all family members, solicit their views on the business, and help structure a plan that meets everyone’s goals and is best for the business.
- Create a plan that all family members support. After meeting with family members, it’s important to take time to objectively assess your business across all operational channels and develop a strategic plan that’s consistent with family values, supports family members’ goals, and positions your business competitively for the long haul. That plan should always include a transition plan between the incumbent CEO and the new CEO.
Whether or not you’re ready to drive your Tesla Model S into this next phase of life, like Bob, it’s important to have a plan for a successful exit to help you align your business and family goals for continued success and ensure you have a smooth and rewarding trip along the way.