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Were All in Agreement, Why Do We Need to Keep Talking About Succession?

by Stephanie Brun de Pontet and Jennifer Pendergast

Family business succession is a process known for generating strong emotions. When these emotions are not addressed, they may have a negative effect on the individuals directly involved, the broader family and the business as well. While both common sense and business advisors will tell you that good communication among key stakeholders will help you navigate this process more smoothly, families in business together—even those with plenty of common sense and qualified advisors—frequently have a hard time communicating about succession.

Why is communication about succession such a struggle? One reason is that succession is an emotionally loaded topic. It requires confronting the mortality of the existing generation, choosing leaders from the next generation and wrestling with concerns about measuring up to expectations, to name but a few common “hot-button” succession-related challenges to this process. In addition, the overlap of business and family may inject strong personal emotions into discussions or disagreements that are an inevitable part of succession. These emotions can make communication more difficult, as many people prefer to avoid conflict. The natural reaction may be, “the less said on this topic, the better.” The tendency to avoid conflict is supported by the assumption that communication about succession is not really important, because the outcome seems predetermined: “Everything will work out for the best.” “The current generation is going to choose anyway, so why bother getting involved.” “We all agree junior will eventually take over, so what is there to talk about?”

A recent national study of family business succession in Canada suggests that the assumption that the outcome of succession is predetermined may be a particular problem because the impact of the succession process on the incumbent leader differs from the impact on the successor. Specifically, while a prospective successor may be gaining in power and authority over the business as his or her experience and competence grows, this growth in the authority of the successor is not often matched with a meaningful decline in control on the part of the incumbent. This can lead to an overlap in authority instead of a clear transition of leadership. This overlap adds uncertainty to the succession process, decreasing clarity about who is truly leading the company and making key decisions.

One explanation for this overlap in power may be the perceived difference in the starting point of succession for each generation. Prospective successors enter the business with little authority, but their control in the business gradually increases as they prove themselves and gain experience. For incumbents, the situation is different, as they typically make all key decisions in the business at the time the succession process begins to be contemplated. A meaningful shift away from this level of control represents a dramatic change and may present a very difficult threshold to cross. As a result, the incumbent leader may be satisfied that “progress” toward succession is being made as junior is gaining in authority, while junior does not really perceive much progress because the incumbent’s authority base has not meaningfully diminished.

This difference in perspectives can contribute to misunderstandings if communication among key stakeholders is not strong, honest and ongoing. The fact that succession occurs over a period of time when business and personal circumstances also change adds to the complexity. While everyone may “agree” that junior will take over the leadership in five years, five years is a long time in business. Circumstances could arise that require a deviation from the succession plan. For example, the timing of a succession may need to be adjusted if the incumbent’s spouse falls ill, or if the prospective successor has an opportunity to pursue valuable additional training. Alternatively, the business environment may change dramatically, affecting the optimal mix of leadership skills needed going forward. The incumbent and successor may have different expectations of how these circumstances affect the succession process, which could lead to conflict or frustration in the absence of good, regular communication.

Compounding the challenge, individuals frequently approach the process of succession with strongly held assumptions, which can contribute to misunderstandings. For instance, incumbent leaders may assume the successor will continue to run the business exactly as they have, or a prospective successor might assume incumbents will permanently exit the business when they reach the age of 65. When these assumptions are not verified with frequent communication, they result in frustration or disappointment on both sides, which can derail the process of succession. As an example, if incumbent leaders continue to involve themselves in all the day-to-day decisions of the business even though their successor was named “president” six months earlier, a competent successor may become frustrated and consider leaving the business. Even if successors stay, they may not be emotionally committed to the leadership role. If incumbent leaders perceive the diminished commitment of the successor, they may reassert control, concerned that junior is really not up to the task. Unfortunately, this sort of counterproductive cycle is very common and can only be broken by clear and honest communication.

While open communication between an incumbent leader and prospective successor is key, the conversation should not be limited to these two individuals. The Canadian family business study found that incumbent leaders who believed other stakeholders (e.g., employees, family members, customers) were uncomfortable about the prospect of succession were more hesitant to give up control of the business to a successor. This finding suggests prospective successors should develop a clear understanding of all stakeholder concerns and take proactive steps to address these issues. This finding also demonstrates that succession impacts the business and family, as well as any other individuals involved in the process.

The solution most frequently advocated to maximize comfort on the part of the broader set of stakeholders is the use of a clear and public timetable for succession. Unfortunately, very few family businesses have a written and agreed-upon succession plan. In fact, in a recent national survey conducted by Laird Norton Tyee, fewer than 30 percent of family-owned businesses reported having a written succession plan. Without a written plan, much needed transparency in the succession process is missing. If stakeholders feel they have basic information about an upcoming succession process, conflict generated by uncertainty can be avoided.

A follow-up to the Canadian family business study found progress on a public plan for succession was associated with an increase in control over the business by prospective successors, and was the only measure that was associated, over time, with a meaningful reduction in the incumbent’s perceived control. This finding provides evidence for the value of a written succession plan. Developing a plan together requires all key stakeholders to start this vital conversation, and the presence of a public document to which everyone can refer is valuable for keeping progress on track.

Clearly, having a written and public ­succession plan in place is a vital first step. However, it is important not to use the presence of such a document as a reason to stop talking about succession—even if those conversations are sometimes heated or unpleasant. Succession is a complex process that will meaningfully affect the lives of many people, as well as influence the future direction of a business. There is too much at stake to risk having misunderstandings derail this important transition in the business. Keep the communication channels open, and try not to make assumptions about what others may be thinking. Each person affected by the succession process will inevitably come at it from his or her own perspective, which could have a direct impact on the eventual outcome of the succession process.

 

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