Five Keys to Succession Success

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Five Keys to Succession Success
Family Business Institute of East
Tennessee January 10, 2006
Craig E. Aronoff, Ph.D. Founder and
Principal Family Business Consulting Group,
Inc. 1220-B Kennestone Circle Marietta, GA
30066 888-421-0110 770-425-1776
Fax e-mailaronoff_at_efamilybusiness.com www.efamily
business.com Founder Cox Family Enterprise
Center Kennesaw State University 1000 Chastain
Road Kennesaw, GA 30144-5591 770-424-6045 770-423-
6721 Fax
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TRANSITIONS FOCUS ON FIVE KEY DOMAINS

• The strategic challenge requiring that family
  firms adapt to market, competitive, and
  technological changes occurring with ever greater
  speed in our dynamic global economy
• The succession challenge requiring that capable
  and willing leaders be developed among family
  members and leadership be transferred in a timely
  and constructive fashion
• The governance challenge requiring that
  mechanisms be developed to assure accountability,
  communication, planning and conflict resolution
  in and between the business and the family
• The family challenge requiring constructive and
  reasonably harmonious relations among members of
  the business-owning family
• The financial challenge requiring ownership
  transfer under conditions burdened not only by
  business and family needs, but by onerous tax
  laws.

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CORRELATES TO FAMILY BUSINESS LONGEVITY

• Significant correlations with number of
  generations business has been in the family
• Strategic Planning
• Boards of Directors
• Frequent family meetings
• No Correlation
• Succession Plans
• MassMutual Survey Of American Family Business

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• There is but one archetypal mythic hero. The
  founder of something... A new age... A new
  city... A new way of life... To found something
  new, one has to leave the old and go in quest of
  the...idea that will have the potentiality of
  bringing forth that new thing."
• Joseph Campbell
• The Power of Myth

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KEY CONCERNS OF ELDER GENERATION

• CHIEF EXECUTIVE OFFICERS
• Financial Security - Business, spouse, family
• Identity Activity Reason to be What does it
  all mean?
• Control of Family - Fear of conflict among family
  members
• Fear Works Against Letting Go
• CHIEF EMOTIONAL OFFICERS
• Financial Security - Independence, burden,
  knowledge
• Spouse - Concern for and impact on her
• Family Conflict - Building unity, managing
  conflict
• Advocate for spouse (appreciation), for family,
  for legacy, for progeny

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Financial Plans
SUCCESSION PLANS ACHILLES HEEL ? Failure To
Plan For Older Generations Financial
Security ? Parents Require Clear Financial
Future ? Gracefully Give Up Control ? If Not
Parents Continuously Tempted To Step
In ? Children Grow Risk-Averse So As Not To
Jeopardize Parents Well-Being
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COMPETITION FOR THE FAMILY BUSINESS DOLLAR
Business Growth People, Systems,Capital,
Inventory Strategic Risk
Older Generation Reward and Security
Younger Generation Compensation, Distributions,
Lifestyles
Taxes Estate Costs
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• EXHIBIT 1
• The Flow of Funds in a Family Business
• ROLE CONFUSION
• Gifts
• Bequests
• Salary/Wages
• Benefits
• Perks
• Dividends
• Stock-Price Appreciation
• A RATIONAL SYSTEM

Family Members
Family Members
Employees
Owners
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IM RETIRED MOREOR LESS. . .

• Retirement Can Be A Dirty Word
• Survey of 3,860 Family Businesses Revealed CEO
  Retirement Plans
• Never Retire 10.8 Over 1/3 Will
• Semi-Retire 23.3 Stay Involved
• 1-5 Years 24.2 In Their
• 6-10 Years 18.5 Businesses
• 11 or More 23.2
• Years
• American Family Business Survey 1995
• Arthur Andersen, Loyola University Chicago,
• Kennesaw State University

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THE INCUMBENT LEADER'S ROLE

• Organize and focus development process
• Assure adequate resources
• Get out of the way
• Listen, give advice when asked, guide in
• goal-setting
• Resist overly controlling, giving too much
  advice, overly criticizing, solving
• problems for youngster
• Use mentors, consultants, non-family
• executives, trusted and knowledgeable
• outsiders

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WHAT FATHERS WOULD SAY TO SUCCESSORS

• Try to have some compassion and understanding
  for
• the guy whos foot is on your neck.
• Im trying to change my way of doing things.
  Old
• dogs may be able to learn some new tricks, but
  it is
• very difficult.
• Ive always been the solution. Now I feel like
  Im
• the problem.
• What I thought were answers are now all
  questions.

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TRANSITION OF LEADERSHIP

• Passing the baton - a non-event
• Five to 15 years
• Step-by-step with finish line
• Exchange at nearly full speed

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COACHING TECHNIQUES FOR PARENTS

• When you see a problem, don't take steps to fix
  it. Wait for a private time and talk to the
  successor about it.
• Set regular meetings with your successor to
  discuss progress and problems.
• When the successor asks a question or shares a
  thought, respond only to the subject that has
  been raised. Don't dredge up other issues.
• Keep in mind that teachers--and great leaders--
  are known more by the success of their followers
  than by what they do themselves.

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• The successor must
• prepare for a job
• that doesn't yet exist,
• in an era no one can
• fully foresee.

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PREPARATION IS A LIFELONG PROCESS

• Work habits, attitudes toward the family
  business, values and relationships all take root
  in childhoods fields
• Learning business at the dinner table
• Work habits through household responsibility
• Enthusiasm for business from parents expressions
• Leadership from childs activities (sports,
  scouts, etc.)

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STRONG SUCCESSOR DEVELOPMENT PROGRAM

• Maximizes potential of new generation
• Improves retention of talented family members
• Provides management depth
• Helps to develop and retain key non-family
  managers

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SUCCESSOR AS REVITALIZER

• Transforming entrepreneurial vision
• into shared mission to inspire and
• empower the next generation team
• Preserve as much tradition as you can
• Make change your tradition
• Strategic reinvention
• Strategic experimentation
• Strategic evolution
• Family support for change

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ANOTHER KIND OF HERO - THE REVITALIZER
OF TRADITION "This hero reinterprets the
tradition and makes it valid as a living
experience . . . instead of a lot of outdated
cliches. This has to be done with all
traditions." Joseph Campbell
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NEXT GENERATIONS SENSITIVE AND THOUGHTFUL INITIAT
IVE Joint efforts between generations Dr.
Livingston
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WHEN FAMILY BUSINESSESDO IT RIGHT

• Carefully cultivated family values include
  stewardship, discipline, responsibility,
  accountability.
• While business is recognized ultimately as
  serving family goals,
• Family is committed to maintaining healthy
  enterprise
• Recognition of need for continuous change
• Reinvest and Reinvent
• Creates structures to govern business and family
  promoting values and sound judgment
• Invests in building stronger family and
  maximizing individual potential

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WHEN FAMILY BUSINESSESDO IT WRONG

• Nepotism
• Conflict
• Distraction from business
• Milking the cow
• Slaying the golden goose
• Preoccupation with status and lifestyle
• Unwillingness to reinvest and reinvent
• Demise of enterprise

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• Businesses can provide the
• resources to make great
• families
• Families can provide the
• resources to make great
• businesses
• The goal is
• Create families and businesses
• worthy of each other
• The next chapter of the
• American Dream