1. Succeeding at succession: identifying
and engaging successors
December 2011
Who to choose? That is the nobody has the right skills to take control. to make decisions that could damage or
The consequences are predictable enough: destroy a business.
question facing an increasing a business that took years to build begins Family dynamics also create emotional
number of individuals to crumble because of low employee challenges. If several children are active
seeking to transfer ownership morale, strained family relations and in a family business, it can be difficult
declining performance. to objectively evaluate each child’s
of a privately held business. Then there are the business owners capabilities. Not to mention having to
The first decision is deciding among and managers who come to grips with tell a child that they are not in line for
three options: selling, passing ownership succession planning, making thoughtful, succession or trying to make sure that all
and management to family members, or strategic decisions through the process children are treated fairly.
allowing family to retain ownership but of identifying and selecting a successor. Sometimes, perhaps selfishly, parents
not management. According to a Grant What’s their secret? They take time to want to transfer the business to their
Thornton International Business Report, develop and implement a succession plan children with instructions to maintain
43% of business owners choose to pass that identifies a successor with appropriate its vision and strategy. Children are
ownership to family members or sell to skills, communicate responsibilities to often reluctant to do things the same old
employees.1 all stakeholders and compensate their way—a tendency not lost on most parents.
While privately held business owners successor fairly. They also recognize that Indeed, some parents may consider this
and managers are usually adept at dealing every position in an organization needs determination to do things differently
with change, the same cannot always be a successor, and that finding a successor an unacceptable risk to the family
said for identifying and grooming their isn’t something that starts and stops. It’s legacy, leading to a search for an external
successors. Why? Because they worry ongoing. candidate who is prepared to maintain the
about how the business will fare after status quo.
their departure. They are concerned Keeping your emotions in check It’s not just owners who face
about meeting the needs of managers Identifying a succession candidate from psychological challenges. The next
and family members who are not in line among people you know, such as family generation may consider leadership and
for succession. And they are afraid of members and employees, may limit equity ownership a birthright, which can
compromising personal relationships the number of choices, but it does not lead to disappointment and frustration
or creating irreconcilable family rifts. eliminate the psychological challenges of if what they believe is meant to be never
Overwhelmed by worry and fear, they choosing a successor. happens. Moreover, some children dislike
let their emotions get the best of them, Many owners start their business so taking orders from parents or employees
making poor decisions or the wrong they can take control of their lives. When because they see themselves as the owners
choice altogether. Others postpone the it’s time to let go, and lose control, they ultimately.
inevitable, clinging to the notion that are understandably reluctant to hand the
reins to someone with less experience. It’s
1 Grant Thornton International Ltd, International Business never easy giving someone the freedom
Report 2009, www.internationalbusinessreport.com

2. Notably, these emotional challenges can The next step is to establish an open
persist long after a successor is chosen. dialogue with the candidate to determine
No matter who you choose, your what he or she really wants. Those
successor and his/her skills will inevitably conversations can lead to the realization
be questioned by family members or that the person isn’t prepared to upgrade
employees. You can keep everybody’s his/her skills or consider leadership
emotions in check by: under any circumstances. Sometimes this
• identifying the skill set needed to run screening process is best handled by a
the business facilitator who can assess skill sets, identify
• providing your successor with gaps and hold candid conversations to find
sufficient training to support continued out what really interests the individual.
business growth The aim is to have your successors
• designing a compensation package to pursuing their true passion, not to have
reward performance them say “yes” because they think that’s
“Business owners are • communicating the roles and what you want to hear. This is particularly
generally self-directed responsibilities of your successor to important with children.
stakeholders The process of identifying candidates
people who like to be in within your family can be less structured
control. Letting go can Identifying your successor and start much earlier. Informal chats with
be extremely challenging Sometimes it’s obvious—the employee young children can help to explain the
or a child is such a natural. Or so you family business and its objectives as well
for them. Ultimately they thought. Your choice for a successor as its importance to the family. If these
need to give their potential may seem clear, but there’s a danger in conversations generate a spark of interest,
successors the opportunity assuming that an individual is interested in then you can take steps to get your
ownership or leadership. And even if the children involved in the family business,
to make mistakes. It’s the
person is keen, he or she may not be right even if it’s just casual weekend work.
best way to learn.” for the job. If there’s little or no interest, it doesn’t
The first step is to identify the skills matter. What counts is the reaction and
Jol Hunter
that your successor needs to run the knowing where you stand. You can always
Grant Thornton LLP, Canada
business. Determining those skills can be revisit the idea later.
made easier by establishing or confirming Keep in mind that choosing your
the long-term goals of your business. For successor involves more than finding a
example, it requires a different skill set to new leader. You’ll also need to consider
hold the course for a business than it does senior management positions that
to transform or reinvent it. The key is to are equally important to maintaining
understand the drivers of the business and continuity today and in the future.
to put its strategy and the organization of
the firm first.

3. Grooming your successor them to work in functional roles in your
Once you identify a potential successor, business or to gain experience outside
you need to develop a skills-related the firm. Regardless of where they start,
succession plan, one that is aligned with leadership roles for your children should
your timeline for retiring or winding down be considered only when you believe they
your involvement. This training may are the right people for the job.
seem unusual for business founders who Judging your successor’s leadership
had to figure things out for themselves. ability is a key decision point in the
But a thriving business is also an excellent grooming process. You may be able to
training ground for developing leadership develop leadership, but if your successor
skills, understanding the nuts and bolts of lacks it, he or she may never be able to step
the organization and acquiring the myriad up. So be open and honest with yourself
skills to assure a seamless transition. To be and your candidate in this regard. If it
effective, the succession plan must provide becomes apparent that the person isn’t
full details on requirements for education, right, don’t hesitate to recruit someone “Owners need to begin by
exposure to business operations and levels else. expressing the attributes
of competency. Your candidate must Identifying more than one potential
understand and accept these requirements, successor isn’t unusual and has its benefits.
they expect in a successor.
and the company’s culture and values. Although several candidates can create They must also understand
A mentor or executive coach might also problems, it avoids pinning your hopes that it may take several years
be considered to help implement your on one person, only to have them fail to
plan, guide your successor’s training and live up to expectations. Whether your
for an identified successor
accelerate his/her development. candidates are family members or staff, to cultivate these. You need
As your successor’s skills and you’ll need clear job descriptions, career time to identify talent gaps
capabilities grow, involve him or her paths and appraisal reviews to prevent
people tripping over each other while
and close them if you hope
in business decisions, the board of
directors and industry associations. These vying to become your successor. You’ll to leave the business on solid
activities demonstrate that your successor also need to articulate the criteria for footing.”
is engaged in and contributing to the choosing your successor.
business, and will build confidence in your Still, mistakes happen—the wrong Laurent Prost
Grant Thornton, France
candidate throughout the organization and person is selected or the needs of the
with stakeholders. business change. A family council or
In some family businesses the children board of directors can reduce that risk by
are born ready. But ready or not, there are providing oversight during the early years
still things to learn before they take over of succession and assisting with future
the top spot. Depending on the children’s succession planning.
experience, it may be appropriate for

4. Designing a compensation package The majority of business owners “Identify your successors
Most entrepreneurs succeed through have their personal wealth tied up in the
drive and determination. You want your business. So make sure you extract value
early. Train them. Make sure
successor to embrace similar values, while from the business before you leave. The you have true incentives to
ensuring that he or she is paid fairly and last thing you want is to be dependent on reward them. And when it’s
motivated properly. So, better to link your children for an income in retirement.
your successor’s compensation to moving An effective compensation plan for
time to hand over the reins
the business forward, not to moving into your successor ensures that: of ownership, step back. If
the corner office. That means tying the • remuneration is market-based you don’t demonstrate trust
compensation package to objective metrics • annual performance reviews are
in the successor you select,
and aligning it with industry standards. conducted
The criteria for rewarding performance • bonuses are based on objective neither will your other
and the consequences for failing to meet performance criteria stakeholders.”
objectives must be completely transparent • employment rewards are separated
and followed without exception. from ownership rewards Bernard Doherty
Grant Thornton, Ireland
For your management team, it may • job descriptions or service contracts are
be necessary to offer equity ownership in place for all company executives.
or a profit-sharing scheme to provide an
incentive to facilitate the succession rather Playing fair to avoid conflicts
than undermine it. Management will feel Let’s face it. Not everybody gets to be
less threatened by your succession plans king or queen even for a day. Most people
and more inclined to increase the value understand and accept that reality. So the
of your business if they are rewarded for more pressing issue after you identify
growing the company. a successor is to play fair with the rest
Compensation plans for a family- of your family and employees. Your
owned business can get complicated. selection will be easier to understand and
Your successor’s compensation should be accept if you express your wishes clearly
performance-based and tied to a transition beforehand and manage expectations
plan that gives them control and decision- throughout the transition.
making responsibility. Children who were As for control of the business, we
not chosen as your successor need to be recommend that one person receives
treated fairly and shown how they can majority control to avoid deadlocks
make a difference in whatever role they between equal owners. If this decision
play in the firm. For those not actively isn’t perceived as fair or handled with
involved in the business, you may need to sensitivity, the family may be divided by
convince them that fair doesn’t necessarily irreconcilable rifts.
mean equal.

5. Consider this: the success rate for • has the CEO, founder or majority involved stakeholders with management
the transfer of family-owned businesses shareholder set up a viable equity authority can confuse business decision-
to the first generation is just 30%. By structure to ensure a smooth making and often result in a recipe for
the time the second generation takes the transition? disaster.
reins, the success rate drops to 15%. The As you make these arrangements it’s
third generation has a mere 5% chance Consider these questions if you own a important to clearly communicate your
of success. Why? In 80% of the cases, family business: succession plans throughout the process.
the business failed because of family • do family members working in the The last thing you want is to surprise
dynamics.2 business have the necessary skills to people. By discussing your plans openly
perform their jobs? and early, you and your employees can
Asking the right questions • do the owners want their children to work toward a common goal of building
Experience tells us that the companies work in the business? your business under new leadership in an
that survive leadership and ownership • do they know what their children’s organization structured effectively for the
transitions are the ones that are run like aspirations are? next stages of its life.
a business, no matter who owns it. You • do the children want to work in the To help ease this transition, it’s
can prepare for succession planning by business? important to work with experienced
answering the following questions: • is there an education policy for family specialists who can help you put programs
• is the business dependent on the members? in place to achieve your succession
current management team? • are family members expected to gain planning goals. Grant Thornton LLP
• is there a training plan for successors? relevant outside experience prior to can help. From estate and tax planning
• are there predetermined criteria for joining the firm? to transaction advisory and wealth
selecting the successor? • is family involvement in the business management, we can help you build
• are there adequate safety nets to reduce positive? an effective transition strategy. With
the effects of mistakes made by the • are there mechanisms to resolve our global reach, proven track record,
successor? conflict, such as a family council? integrated suite of services and in-depth
• is there a contingency plan? • is there a shareholders’ agreement? knowledge of privately held businesses,
• is there a timeline for handing over our practitioners truly act as your trusted
control? Making the most informed choice guides to help you navigate the succession
• are career paths for other executives Selecting and grooming a new successor planning process.
mapped out? can be one of the most challenging To find out how our professional
• do we have the right skill base in the tasks of a business executive. You can advisers can help you identify and
new management team; what gaps need smooth the transition to new leadership motivate your successor(s), contact your
filling? and ownership by treating minority local Grant Thornton succession and
• what will the CEO’s role be after shareholders equitably. This might include estate planning specialist.
retirement? How about the role of a division of assets, a share of profits or
potential heirs? a family trust, but it should not include
management control. Providing non-
2 Fast, John, the Family Business Doctor (Waterloo: Family
Enterprise Solutions, 2007), 36.

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