Why is it so hard to find a successor?

There are roughly 5,600 family owned businesses in the world that are 200 years or older. 56% of them can be found in Japan. Most of the other ones are in Europe.

This means that a lot of the Japanese companies are in their 40th plus generation of family ownership. Seems like they have succession planning all figured out! To learn more about succession planning the Japanese way, click here.

Let’s keep our discussion of succession planning a bit closer to home and understand why American family businesses and privately held companies are having such a difficult time finding suitable candidates to lead their organizations.

Karl is an entrepreneur who has built a very successful paving company over the past 35 years. He is in his mid sixties and thinking about retirement. The only problem is that Karl doesn’t have a successor for his business. Sure, he could sell the company that bares his name, make a small fortune and sail off into the sunset, but he’d like to keep his legacy alive, even if his family is no longer running it.

Karl has three children. Two are very successful in their own careers and not interested in running the family business. Tom, his youngest son, is in the business but doesn’t have the desire or potential to take on the CEO role.

If Karl could turn back the hands of time, he might have approached succession planning differently. If you are a business owner, here are a few things to avoid:

• Process rather than Plan: Most business literature defines succession planning as the act of identifying and developing people with the potential to take on senior business leadership positions.  Is Succession a plan or a process? A plan is an idea that was put on paper and tucked away in the drawer. Just like a person’s will, you can update it now and then, but then it goes back into the drawer. A process on the other hand continues to move every day. And the succession process is linked to the identification and development of talented employees. At the end of the year you measure the progress that has been made and where necessary, you adjust the process. Maybe Karl’s firm needs to look outside to find the right talent in the market.

• Not in my job description: Corporate CEOs know that they will be pushed out of office sooner rather than later. Many reach the maximum age allowed under their corporate governance and have to retire. With an end in mind, CEOs have a responsibility to identify and develop their successor. Business owners often don’t even have a job description let alone a goal of grooming a successor. If their business is going well, there’s little pressure to change anything. Just keep making money.

• Don’t need a board: The attitude of most business owners is that they don’t need or want a board. Boards only take away the owner’s control, impose their will and cost money, or so they think. Only about 5% of all privately held companies have an independent board. If Karl would have had a Board, they could have helped him identify possible successors and put a development process in place. Another upside of a board is that they could help keep the company afloat if God forbid, something happened to Karl.

• I’m the center of attention and I like it that way: Business owners like Karl have always been the center of attention. He knows most of the firm’s clients by first name and most of those clients want to deal only with him. Karl never was very good at empowering his staff and delegating responsibility to them. The end result is that everything lands on Karl’s desk, just like it did 30 years ago. This is not healthy for the organization or for Karl.

• No plan, no purpose:  Sure, Karl talks about retirement but when asked, can’t really explain what that will look like.  He stated:  “Maybe some travel with the wife and more golf, to be sure. I’ve never had the time to spend with my grandkids so I hope that changes.” When it gets right down to it, Karl has no plan in place for retirement and no idea what his purpose will be when he stops going into the office.  Chances are he’s afraid of letting go because he doesn’t know what that’s going to look like.

• Lack of trust: Running his business, Karl never had to depend on anyone. He took the risks, made the decisions and reaped the rewards and setbacks. When you’ve done this for 35 years it is hard to trust that someone else is good enough to make wise decisions and not run your company into the ground. They might even have some new and different ideas on how best to run the company. Once you give your 16 year old the keys to the car, you are going to have to trust that he’ll bring the car home in one piece. If not then there are consequences. But sooner or later you are going to have to trust him to get behind the wheel. Every pilot knows that in order to get their license, they had to fly solo… and probably not in their own plane.

Succession Planning is not easy but it’s a process that the owner or CEO of a company has to put in place and support. Everyone will be replaced, someday, so think about how best to orchestrate your departure. Those who are hanging around will thank you for it.