Succession planning is about two key elements: the transfer of power, whereby control over the business’s operations is transferred to those best suited to exercising it, and the transfer of assets where the wealth in the business is transferred to the next generation or to persons who will be assuming the power to run it.
As one writer points out, “the former, transferring power is an art, while the latter, transferring assets is a science.”

In this article we are dealing with the “softer” side of succession planning, the transfer of power. There is an army of lawyers, accountants and tax and estate planners out there who are willing and able to provide professional advice and counsel in the matter of the transfer of assets. Unfortunately, while there are some professionals who specialize in the transfer of power and the “soft” side, there are not a lot of them.

What prevents the orderly transfer of power from one generation to the next? Well, there are several reasons, starting with the reluctance of the owner/founder to give up control. There are many stories of failed successions related to the continual dominance and interference by the founder or owner. The inability to let go, to place trust and confidence in the next generation, is well documented.

Another reason that succession doesn’t often work smoothly may be the reluctance to select and name a successor. Most family businesses have at least one member of the next generation who is more active and qualified to take over than other members. The key in this situation is to find a way to provide fair treatment to the other members of the family who are not participating in the business.

If there is no family member ready to take over, then there is the possibility that a non-family member can be groomed to run the business on behalf of the family. This implies the family and the founder/owner will give the person the latitude to make the appropriate decisions after consultation, and without interfering in the implementation of the decisions.

There are many more potential pitfalls in the succession planning scenario but there are also ways to ensure the transition of power occurs smoothly and effectively. First, the owner must view succession planning as a process rather than an event. He or she has to develop a process for reviewing performance, deciding on selection criteria and grooming successors. The alternative to this is succession by default - no planning, no preparation for the time the owner can no longer run the business for reasons of health or lack of interest.

Communicating with family members about goals and aspirations is also very important. It is essential the owner and the next generation sit down and discuss things such as the strategy for the business, where it is likely to be headed in the next few years, and what must be done to prepare the people and the business for the future. Those discussions provide the opportunity to clarify differing agendas and to reach some conclusions about direction, conclusions that can be implemented by the successor with the full support of the founder/owner.

The transition of power from one generation to the next can and should be a smooth and effective process. With thought, work and effort, the best of all possible worlds can be achieved. The owner is satisfied that the legacy will remain intact, the successor is happy the transition has been accomplished, and other family members and non-family members are assured of their role in the renewed enterprise.

In our next column we will describe the process of achieving this orderly transition.

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