Family Business

Owners of family businesses need an exit style

August 18, 2012 

Succession in the family business is a bit like a seesaw – in order for one end to go down the other must go up. If both ends try to stay up, stagnation and frustration occur. If the top end tries to come down and the other does not go up, then things start breaking.

As I’ve written before, much of the focus on family business transition is on whether the next generation can and will step up to the challenge. To be sure this is important; if you are stepping out of the business and there is no one assuming the leadership role of the company, everything you’ve built may go to dust.

But let’s assume that the next generation is motivated and qualified to take over the business. In this case, the only thing standing in the way is you, the current business owner.

The standard retort I hear from the current generation is, “Yes, I want to take some more time off, but I still want and need to be involved in the business. I don’t want to just be cast out.” It is important to understand that in many cases the immediate departure of the current leadership would be quite detrimental to the future success of the business.

I devised a quite simple but effective strategy of transitioning out of the business for one client. He declared one day he was going to start taking every Friday off. It gave him a three-day weekend and allowed the next generation a little space to find their leadership footing. After some time of doing that, he declared that he would start taking Thursdays off also. Ultimately it ended with him popping into the office late every Monday morning to have a cup of coffee.

Unfortunately, not all current generation departures are as graceful. Jeffrey Sonnenfeld and P.L. Spence outlined in their 1989 Family Business Review article the main CEO exit styles from family businesses.

• The Monarch: How does the king transition power to the next generation? They die. This certainly is the most risky method of family business transition. Certainly, this is not a method that is thoughtfully and proactively selected as a business leadership transference strategy. Rather it stems from the current leader’s unwillingness to relinquish control, even though there will be negative consequences for such action.

If the next generation is not capable of assuming leadership, elevate someone internally who is, bring someone in from the outside, or sell.

• The General: At a predesignated date, not of their choosing, generals are asked to retire. However, they may not be personally ready, or still believe that they have a lot of value to add, or worse, believe that no one can do it but them. This is very common in family businesses. Mom or Dad do some traveling, then come back and elicit responses from their old guard that the next generation is not cutting it, thus setting the stage for them to come back to the rescue.

• The Ambassador: This style is commonly associated with highly functioning family businesses. Reflect back on my client where the dad was progressively taking a day off a week until he was only coming by on Mondays for coffee.

What would also happen is that when there were big contracts out for bid, or a major issue at work, or simply opportunities or issues that were based on past relationships, Dad would arrive in suit and tie ready to lend credibility and grease the path if necessary.

• The Governor: This style is effective in larger organizations, or when the current generation truly does want to get out of the business and move on, or to break company homeostasis, forcing the next generation to step up. Set a firm departure date in the future, and then begin working toward making everything happen by that date.

• The Inventor is yet another style. In this instance, the owner wants to give up leading the business but still contribute in a particular area where he or she has a lot of expertise.

What style of CEO exit is your family business headed toward? Let us know.

Henry Hutcheson is a nationally recognized family business speaker, author and consultant in Raleigh. He can be reached at Familybusinesscarolina.com.

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