You can pick your friends but not your family – which can make generational succession planning a risky road. The third emperor of the Roman Julio-Claudian dynasty, Claudius, is a case in point.
Though he made a name battling the British tribes, his promotion to the big time was unplanned. He was acclaimed emperor only after his unstable nephew Caligula was assassinated and his brother Germanicus (originally groomed by Tiberius for the position) met a suspicious demise somewhat earlier.
Out of all this instability some better planning and selection mechanisms should have been put in place rather than a ‘flying by the seat of your toga’ approach. Sadly, they weren’t. Having foiled one attempt to circumvent his reign, Claudius made the fatal error of then backing his fourth wife’s snivelling offspring, Nero.
Concepts such as generational succession, management buyouts, or changes in partnerships, sound straightforward enough until you factor in a plethora of underlying issues. For example:
* The next generation buying out the family share in a multiple shareholder company or partnership
* The management buyout buyout of a share in a multiple shareholder company
* A third party purchasing a major stake in a multiple shareholder company
The challenges in realising a successful exit from business are undefined at the start of the succession journey and often many aren’t identified until the last steps are taken. Nevertheless, from our experience there are five common indicators that need to be read like tea leaves in order to increase the odds of the empire continuing.
Are the inheritors committed to the business? In generational succession, the son ordaughter must be passionate about future success, and not there merely to continue to get the lifestyle that Mum and Dad had.
Do they have the skills to push the business forward in an ever changing environment? Their ability to develop new markets, steer through industry risks, engage new technologies and seize opportunities will be integral to ongoing success.
How will they be viewed by other employees, the management team, and in multiple shareholding companies, by their co-shareholders? Envy, disrespect, and unwarranted promotion are common emotions associated with a sudden elevation. Do they have the ability to instil strong governance yet also possess a ‘work in the trenches’ trait?
Do they understand enough about financial management and liquidity to build a robust business? Can they link their strategic ideas with financial parameters and create a stronger return to investors? What about their financial needs and capabilities as they buy in – how will this be funded and are other shareholders protected?
Do they fully understand the nuts and bolts of the products and have the ability to answer the tough questions from customers? Can they improve or adapt the offering or are they still reliant on other key employees of the business? Is there an unaddressed risk?
These are by no means the only issues but the message in this regard is simple: invest the time up front to get it right rather than incur a cost later on to unwind an ineffective changeover.
As business advisors, all too often we are asked to unwind succession strategies because they haven’t been planned properly. What we’d recommend NOW in order to avoid a Nero lookalike sitting in the business driver’s seat is to:
* Grab the succession planning ‘bull’ by the horns. Front up, face the issues, engage someone independent and/or experienced to help guide the process and make decisions
* Make sure you have good governance systems and processes in place. To help guide you through the process and to make the incoming person’s life less stressful
* Think about some sort of ‘mentoring’ or transition program for the new blood as a prerequisite of success
* Ensure all funding issues and sources are identified
In other words, stop fiddling and seize the moment
Aaron Wallace is a business improvement director at Hayes Knight
This story originally appeared in Succeed.