Booming Baby Boomer Exodus Makes Choosing the Next Generation of Business Leaders a Challenge

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Starting now, more business owners are retiring than ever before. New research shows that selecting the right successor may be more challenging than they think.

The choice of successor to lead your business can propel it to great success or plunge it into failure.

With the onslaught of baby boomers entering retirement over the next decade -- an estimated 7,000 to 10,000 people a day starting this year -- who will take over the leadership of privately held firms and family businesses? “The choice of successor to lead your business can propel it to great success or plunge it into failure,” says Richard A. Morris, principal of ROI Consulting in Evanston, Ill. “With less than 30% of family businesses successfully transitioning to the next generation, leadership selection is a key consideration.”

Through his research, Morris has identified three techniques business owners typically use to choose successors that often lead to a poor long-term prognosis for the company:

1. Anointing the firstborn. Often the owner will follow a tried and true method of leadership transition, taken straight from royalty, by anointing the firstborn the next leader. This method can avoid arguments among siblings and often adheres to family tradition. However, it fails to take into account the desire or capabilities of all of the children or other potential candidates.

2. Selecting whoever is interested. Just because a family member has decided to come work for the company and has expressed interest in taking on the leadership role does not mean he or she has the right capabilities. Morris warns, “Often we find that family members working at the company are there for all the wrong reasons. It may be, for example, that they were unable to find another career and drifted back to the family business. Is that who you want running the company?”

3. Choosing the person who “does it like me.” Many family business leaders who are thoughtful about their succession decision choose a person to run the company who has skills similar to theirs. “This may appear to be the correct choice, but most of the time it is exactly the opposite of what is needed for the next phase of the company,” explains Morris. Research defines four lifecycles or stages: Start-Up, Growth, Mature, and Reinvent, and each requires a leader with a different skill set.

Morris points out, “For example, leaders need a great deal of creativity and determination during the start-up phase of a company, while exceptional management and MBA skills are required during a massive growth cycle.” Typically when leadership changes hands, the company has entered or will be entering the next phase of its lifecycle, requiring a new leader with a skill set that matches the new needs.

To avoid making these common leadership succession mistakes, Morris recommends business owners develop a list of skills required by the stage the business will be entering. “Then owners should assess all of the family candidates to see who may have the needed skills. If there are no family members with the requisite skills, it may be better to hire a professional manager,” Morris advises. “I’d rather own a company that succeeds than run my family firm into the ground.”

Richard Morris is principal of Evanston-based ROI (Resource for Ownership Intelligence) Consulting which helps family owners expand and pass down their business to subsequent generations. He also provides family business education, consulting and strategic planning for cooperatives, franchises and associations, and is an adjunct professor at the Lake Forest Graduate School of Management. Previously, he managed marketing and acquisitions for his family's 80-year-old privately held company, Fel-Pro Incorporated, and served on its Board of Directors until the sale of the business in 1998. Morris also co-authored the book “Kids, Wealth and Consequences: Ensuring a Responsible Financial Future for the Next Generation” (Bloomberg Press).

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