Newport Board Group, an Advisory Firm Serving Middle Market Companies, Issuance Guidance on Closing the Great Family Business Succession Gap

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An indirect and gentler way to help business owners get unstuck

In what has become no less than an a family business endemic, some 50% of small to midsized business owners in North America report having no current plan for succession. This promises to perpetuate the unfortunate incidence of catastrophic value losses for many family businesses.

In what has become no less than an a family business endemic, some 50% of small to midsized business owners in North America report having no current plan for succession. This promises to perpetuate the unfortunate incidence of catastrophic value losses for many family businesses.

And since family businesses have been responsible for 85% of all US jobs created from 2000 onward, unless treated it could also be devastating for the entire US economy.

Business founders are implored to just let it go, to relinquish their clutch on the reins of power. They are also urged to professionalize and prepare the management ranks for the handoff. And they are warned of the risks and burdens that spouses may come to bear should calamity befall them.

Yet, statistics show that these exhortations don’t seem to ‘move the needle’ when it comes to prompting founders into right action.

How ironic that notwithstanding their tenacious grip, some 88% of business owners say they foresee their families carrying on the businesses five years and more downstream, as reported by the Family Business Institute. In the chasm between these high expectations and the absence of a plan we trip and fall into the ‘reality gap’ – the underlying cause for the prevailing ‘succession gap’.

But the gaps don’t stop here. The ‘reality gap’ is a byproduct of the ‘I’m-not-sure-what-to-do’ gap. Aren’t we all too familiar with that one -- it’s the gap that suspends action. The one that leaves us stuck.

And because matters of succession entangle the personal and emotional sides of family life with the operational and financial sides of the family business, yet another gap widens from deep within, at the core of all stuckness in the world. It is the “I-don’t-want-to-talk-about-it’ gap.

If a business founder is anxious about what life would be like for her after a transfer of power, or has doubts about the readiness (or appreciation) of the next generation, or is just plain vexed about the business in general but has somehow always managed to see it through by herself, the compound chain of ‘gaps’ will ultimately do its disabling damnedest. And national statistics will continue to foreshadow the tale of those unable or unwilling to act.

So when seasoned owners are urged to take immediate action, to name that successor, to put down the phone and back away from the big desk chair, and put a transition plan in motion, these demands appear before them like a mountain of emotional toil and risk. Suspended by the mountain, they become the 50%ers noted above – with business continuity threatened, and with family wealth exposed to a single stroke of bad luck.

Are these business leaders to blame for their immobilization? After all, aren’t these the kind of people who start businesses, cope with uncertainty and overcome obstacles? Or might we be wiser to put the onus on the same old solutions imposed upon them, and apply a different tack?

Considering a less resistant path, we might ask: What are business owners able to talk about with emotional ease? The business. And: What do business owners know how to do, in order to move the business forward? Take planned, incremental, action. And lastly: What do business owners readily seek when they need to take action? Information.

Which altogether in turn begs one big question for business advisers, like those of us at Newport Board Group who serve these owners. Why not apply the insights that ‘gap theory’ reveals and offer a path of least resistance that leverages all three of the unemotional, the actionable and the informational?

What follows are suggestions for how we may pave an unstuck pathway to generating properly planned successions – successions that prepare for unforeseen calamity, that keep the family moving conversationally in the direction of power transfer readiness, that preserve hard-earned wealth, and that keep the business vital in continued service to the world?

Our gap-closing algorithm:

1. Keep it out of the emotional cauldron.
Rather than prematurely name a successor, why not name a ‘placeholder’, until a successor is ready? Who could the owner rely on to execute a set of pre-registered instructions for what to do with the business should the owner be separated from the action due to illness, death or come-what-may?

Would this not aid in fostering more patient and unemotional conversations with offspring or with wider members of the family as to who might be next, and what they may need to do to be ready?

2. Take small action in the direction of bigger action.
What would be the owner/leader’s instructions for the business should the worst occur? Sale/exit? Continue on? How would vendors, customers and employees be informed and kept engaged? What is the 2-3 year vision for the business, based on current performance and the plans that are in place? Working with someone to produce this set of contingencies can make hills out of mountains, and be freeing and comforting for the leader of any family business.

3. Gather information about the business, and keep it coming.
What would someone with temporary executive custodianship need to know about the business to perform his or her assigned task? How could that knowing be kept up-to-date until such time as a permanent successor is ready to be put in place? How might this objectively collected information also serve those who run the business today, and crisp up targets for tomorrow?

The former C-suite executives at Newport are one of many options to consider for a temporary stand-in -- for a “Standby Leader” -- if you will. Respected allies, business partners, long-standing board members are all viable options to consider for the interim executor.

The three keys to closing the great family business succession gap – and for treating less confrontationally all the gaps that serve to block the path forward -- are:

  • de-emotionalize the succession matter
  • take incremental action, not mountain sized leaps
  • make information the enabler it can be, for tomorrow’s business -- today

Engaging with a committed external ally in the effort to deal more gradually with succession opens up dialog that refreshes the leader’s view of the business -- and begins in measured doses to close all gaps. No urgent exhortations. No emotional mountains to climb. Just business-focused, incremental and informed actions that serve to free owners from being stuck, and de-risk the hard-earned value of so many job-producing family businesses nationwide.

Bill Carroll is a partner in the New England office of the Newport Board Group.

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