From the series: Successful succession planning – how family-run companies can make a smooth transition to external management

Every family business faces the question of appointing a successor at some point. Should a family member continue to run the business in keeping with the tradition? Should you rely on an internal employee with potential or should an external manager take over the helm?  About half of family entrepreneurs opt for a successor from within the immediate family circle. But even if this seems the obvious choice, it is not necessarily the best solution. It is frequently much more profitable for companies to appoint an external management team. In order for the new interface to function reliably from the outset, long-term planning is absolutely essential and all parties involved are faced with the challenge of ensuring that the company is well positioned for the future and can hold its own on the market.

 

The end of an era

Family entrepreneurs are rightly proud of their company. After all, it is a lifetime achievement that has had a decisive influence on everyday life for decades. Not only has money been invested here, but also dreams, hopes and personal encounters, which collectively account for a high emotional value. If the life as a management board member is coming to an end, it is important to start thinking about a new option at an early stage, as there are different approaches available when considering the issue of succession in family businesses:

• If internal talent is under consideration for the succession, a proactive start should be made at a very early stage with the corresponding development and expansion of the existing human resources.
• The company can be taken over by a family member who is willing to continue running the company and also possesses the necessary expertise.
• Another option is to sell the company to an external, well-established management team. In this case, the owner of the family business severs ties with his company and sells it to a new management team, which then not only takes over as the new management, but also becomes the new owner.
• A possible compromise is the option of continuing to hold the shares in the family business but handing over the management to an external management team.

Family entrepreneurs often assume that their offspring are interested per se in the continued existence of the company, having grown up, after all, in this family environment.  However, the next generation often finds it difficult to adopt the goals of the older generation as their own and to work just as tirelessly to achieve them. In many cases, too, many members of the next generation also have extensive plans for their own lives and favour a career that is independent of the family business. In addition, senior and junior family members often have different visions for the future direction of the company. What has been the focus of one person´s life for years does not necessarily hold the same meaning for the other person.

Furthermore, the junior manager is not necessarily the best manager or equipped with the relevant skills for this task. It is a balancing act that can succeed, but also one that often fails.

The family ownership continues, the external manager comes in

Placing an external manager at the helm can create a great opportunity for the company. It is therefore definitely well worth at least considering this option. The market is full of highly trained managers with excellent business management skills who can keep the company on course for future success and profitability. As a rule, the company will benefit, not only from a fresh look at its longstanding structures, but also from the innovative rethinking that follows.

If the decision is made that the family will retain the company shares but appoint an external manager as the successor for the operational business, it is essential to plan ahead with precision and with foresight. Preferably well before the position is advertised. After all, a number of things need to be considered in order to create a successful candidate profile:

Key position in times of change

One sensible approach is to install an Advisory Board consisting of several people. For example, it could be made up of family members/owners and industry experts.  Among other things, the role of the Advisory Board is to select and strategically steer management in order to promote the objectives of the owners. Its aim should always be to find a solution that is in the best interests of the company and its employees. In the course of the succession planning, the Advisory Board determines the success profile of the external manager and ensures a structured selection process.

This approach is particularly recommended in the case of several owners, who are interested in finding  an external management successor, as there will rarely be absolute agreement down to the last detail.

Planning and implementation

Successful succession management in a company demands a stable basis, which must be accompanied by careful planning.  Once the key position of the Advisory Board has been found and appointed, the former management and the Advisory Board agree on the relevant profile. What qualifications does an applicant need to have? What technical and professional expertise and soft skills are expected? Once the profile has been established, the other parties in the company should be considered just as quickly: How should the succession be communicated? How should employees be involved in the transition? What needs to be communicated to the workforce at an early stage?

Transparent communication with employees is key to creating an understanding for the new solution and generating positive sentiment for the new leadership. When the familiar and trusted owner leaves, employees should not be left in a state of uncertainty, but should find clearly defined structures that guarantee security. Any unnecessary uncertainties should be intercepted as they arise, so that the company remains on course during the transition.

Saying goodbye to traditional roles

In the course of the handover, it is important for the owners to let go of their old roles in the interests of a successful new start. They no longer act as a point of contact for employees and no longer intervene in day-to-day business processes.  This is not easy, especially in the case of long-standing trusting collaboration, but is absolutely essential for the successful implementation of an external management. Only a clean cut will pave the way for a successful takeover of the company management.

Succession planning for continued business success

Handing over the operational management of a family business to an external manager is definitely not an easy step. However, it is often precisely this path that ensures the continued existence of a traditional company and steers it into the future. Succession planning with a concept relies on well thought-out measures and prudent action – always in the best interests of the company.