Are your third- or fourth-generation members ready to lead? Here are the keys to assessing their capabilities.
By Ellen Frankenberg
In my travels around the family business transition landscape, I have come to recognize four landmarks that indicate a succession plan going well. Especially in the third or fourth generations, when the power of the founder’s personality has mellowed and expectations of six-figure salaries have become the norm, it helps take a look from the 30,000-foot perspective.
I have identified four landmarks of a healthy succession landscape: integrity, innovation, competence and collaboration. The grid below provides a framework for assessment and further discussion.
Integrity is generally considered the most essential successor attribute. In a 1998 Canadian study of 485 family businesses conducted by James J. Chrisman, Jess H. Chua and Pramodita Sharma, integrity and commitment to the business were the most important criteria cited, certainly more important than birth order or gender. Family members expect honesty above all (especially from those watching the till). Successors must be committed to the well-being of the business and all its shareholders, not just what’s best for them personally.
Innovation means a recognition that the business will not be sustainable if the successor runs it exactly the way Dad did. The typical life cycle of a U.S. business is about 25 years, corresponding roughly to one generation. To beat the odds and become a multigenerational family firm, the company will have to be reinvented by the second or third generation, as market conditions, technology and society itself are continually transformed. How often does a potential successor come up with a new, more efficient process, or a method to bypass old assumptions?
Competence must override primogeniture. The myth that the eldest son must inherit the kingdom is a relic of the past. Especially during tough economic times, businesses that survive and grow are those that choose the most competent leadership available, whether the leader emerges from within the family or beyond it. The skills required to manage a $30 million company (or a $100 million company) are very different from the entrepreneurial mindset needed to run a startup. What competencies are necessary to take your company to the next level? Strategic thinking? Market analysis? International trade experience? A talent for re-engineering operations and procedures? Communications and PR skills? Ability to secure financial resources?
Collaboration is required as soon as more than one family member is hired or owns stock. If a potential successor ignores others’ perspectives, the other family owners will balk. Team-building, in management as well as within the ownership group, can be learned, though it sometimes must be learned the hard way. Can your potential leader attract strong talent to the business and develop new collaborative solutions with other team members, solutions that no one would have conceived alone? Will other family participants feel sufficiently included to wholeheartedly support new business initiatives?
Acquiring leadership competencies
Given these tough expectations for future family business leadership, how do you build integrity, innovation, competence and collaboration into the chromosomes of third- and fourth-generation members? Typically, the company at this stage is larger than their grandfather’s ever was, and successors have been raised with expectations that Grandma (born in the midst of the Great Depression) never imagined.
Here are some suggestions for checking up on these four competencies for potential successors, including some challenging tasks to help fill in the missing links.
1. Integrity: Does this individual tell the truth -- the whole truth -- especially about money, particularly when the facts affect others? Is there sufficient attention to detail, so that glitches in financials will be tracked down and resolved? When a problem surfaces, will the next-generation member accept responsibility for it -- or will he or she dodge it, saying, “mistakes were made,” or offering some other excuse? Are perks, like NFL tickets or BMWs, shared fairly with peers?
Proposed task: Take leadership of a department or project with full responsibility not only for meeting budget, but also for achieving specific profit targets, with a bonus depending on outcomes. Report failures as well as successes. Use a 360-degree review for feedback on the project from all sides.
2. Innovation: When was the last time this potential successor came up with a solution to a problem that didn’t just echo Mom’s ideas? Can this person disagree respectfully, even with seniors, to advance ideas that may lead the company in a new direction? Does this person ever carve out a Saturday morning to tackle a stiff problem and come up with fresh alternatives? Is he or she ready to change behaviors, to try a new approach, to work more successfully with other team members?
Proposed task: Develop a new sales strategy for reaching an untapped customer base. Provide the “right” research that indicates the likelihood of success. Develop a concrete written plan outlining the resources required and the timeline to make this strategy a reality.
3. Competence: Based on objective assessments, define this individual’s readiness for leadership, based on where the company will be heading in the next ten years. Develop an individual growth plan or map a systematic sequence for acquiring the competencies that are lacking. If financial analysis is a current weakness, the next-generation member might take appropriate courses, or perhaps enter an MBA program. If the individual needs to develop sales effectiveness, he or she could partner with the firm’s top sales representative or sign up for a sales training program.
Proposed task: Write down goals for developing missing competencies, and identify an executive coach who can walk the candidate through the right gates. Develop a sequence of responsibilities in different parts of the company, even including driving a truck or cleaning out the warehouse, to develop a bottom-to-top perspective.
4. Collaboration: How often does this potential successor build teamwork by complimenting others’ work, and sometimes letting others take the bow? How often does this individual volunteer for less glamorous assignment, and complete them exceptionally well, even motivating others to grab a paint brush and pitch in, as Tom Sawyer did?
Proposed task: Invite members of the third generation to a weekend retreat featuring some challenges, such as a ropes course, river rafting or a ribs-cooking contest. Ask the siblings and cousins at the end of the weekend what leadership qualities they observed and which ones they believe can be transferred to the family business. These real and potential owners, who have a significant stake in the future of the company, know a lot about whom they trust, and who can gain the respect of the team.
Preparation starts early
This kind of assessment process makes sense if second-, third- or fourth-generation successors have been prepared all their lives through …
* positive messages -- if not excitement -- from both Mom and Dad about the potential of the business.
* sharing lots of experiences that involve laughter and build teamwork with siblings and cousins.
* summer or part-time stints working in the business to instill a solid work ethic
* a introduction to the value of money and the ability to add and subtract it, if not multiply it.
* autonomy, or some track record of success that does not depend on one’s last name.
* an appreciation of their heritage and the hard work required to provide the lifestyle they enjoy.
Integrity, innovation, competence and collaboration: four landmarks for the future. Can you see them within the landscape of your family? What will it take to build them? FB
Ellen Frankenberg, Ph.D., is a consulting psychologist and family business adviser (www.frankenberggroup.com).
Ask each candidate to rank himself or herself on a scale of 0-10 in each of the four dimensions in the diagram, with 10 being the highest and 0 marking the lowest attainment of that quality to date. Ask at least three others who know his or her work well to also estimate a rank. Discuss what steps can be taken to become more effective in each dimension.