Family Business

The time to change leadership

CorrespondentJuly 17, 2011 

Graduation day, your first real job, your wedding day, the day your first child is born and awards for achievements: These are the milestones of life for many people.

For a family business, the day the leadership passes from one generation to the next is the significant event.

I had the rare opportunity recently to be in the room the very moment a transition occurred in a family business. It did not happen the way you might think.

You might envision the handover to the next generation being ushered in with a marching band and a fireworks display. In some cases this is true.

More typical leadership transfer styles are outlined in the book "Family Business," by Ernesto Poza. My favorite example is the Monarch - when the king dies then the next generation can assume control. Usually this is disastrous, with heirs squabbling and the eventual leader trying to adjust to sitting at the desk where the buck stops.

We had a client years ago whose heir apparent did not have much responsibility. When he declared that he wanted to leave the company to pursue another career, his father promptly promoted him to president and increased his pay, declaring "one day this will all be yours." However, he still did not gain any real decision-making responsibility. When his father finally did pass away, he found himself, at 63, gaining control of the company for the first time.

Another good example style Poza cites is the Governor - set a date for departure, announce it, and then everyone works with urgency to figure out the plan. While this is certainly a much better way to handle a succession than the Monarch, sometimes the reality of life makes it impractical to stick to an exact date. (Think death, divorce and downturns.)

Sometimes an emergency prompts the move. A former client experienced a situation where the current generation had a severe falling out, and the best resolution was to simply move the leadership to the next generation. While it occurred rather promptly, the next generation had been in the process of preparing for the transition. So it was earlier than planned, but was not a complete shock to the system.

The beauty of the succession I just sat through was that it was as smooth and natural as it could possibly have been. The son had managed each of the departments, and had worked with banks, vendors and customers. He had taken on significant business issues and opened up an entirely new route to market. He had read the books and attended the conferences.

The idea was certainly out there that at some point a transition would occur. But with his father still at the top of his game, there was no sense of urgency.

It happened during a simple organizational restructuring meeting with the son and the dad. Some employees had left the company, and some people needed to be moved up while others needed to be moved over. In the cascading effect a reorganization can create, the question was raised, "What about Allen?"

Allen is one of those unique employees that you can't live with, but you also cannot live without. He is challenging to manage. "If we move him to the new position, who should he report to?" was the question.

"Well, he and I get along great," the son volunteered. "He could report to me."

That is when I interjected, "Well, then I suppose that would mean we would need to make you president."

There was a long silence before the son said, "Well, I guess so."

To which the dad responded, "Sounds good to me."

And it was done. The leadership had just changed hands.

People often ask me, how you know when the best time is to change the leadership. Maybe the answer is the same as when it is time to make the wine: When the grapes are ready.

There were two errors in my previous column about Whitley Galleries, the family business in Zebulon: C.V. Whitley was a veteran of World War I, and Amos' and Charles' last name of Estes was inadvertently omitted. My apologies.

Columnist Henry Hutcheson is a nationally recognized family business speaker, author and consultant with ReGeneration Partners in Raleigh.

henry@regeneration-partners.com

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