When family-business owners think about succession planning, it’s often from the point of view of the soon-to-be-retired CEO. He (and it almost always is a he) thinks about the son (and it almost always is a son) who will inherit the business; the tax implications of such a transaction; whether to take a seat in the boardroom or retire completely; and just how many rounds of golf he’ll have time to play now.

And while all of these considerations are important, often, the needs and feelings of the second generation go unnoticed. In too many situations, it is simply assumed the eldest son will take over; daughters aren’t considered unless they’re the only heirs. In other situations, the offspring is happy to assume the reins, but is unprepared for the unique challenges of being a second-generation manager.

In fact, failing to recognize the problems sons and daughters face can destroy even the most prosperous family businesses, says Quentin J. Fleming, author of Keep the Family Baggage Out of the Family Business (2000, Fireside/Simon and Schuster).

“[Second-generation managers] can feel overwhelmed,” Fleming explains. “Will they be able to live up to their parents expectations? How do they make changes when everyone in the business is used to the way their parents did things? There’s also a nagging feeling that they just might not be ready.”

Of course, some transitions do work the way tradition expects them, without the baggage. Rick Sanchez, CEO of Acme Building Maintenance, Alviso, Calif., took over for his father Henry in October 1999.

Henry Sanchez started the company in 1970. Rick worked as a janitor through college, then joined the company full-time in 1978.

“I was going to be a physical education teacher and coach,” explains Sanchez, “but my dad approached me and asked me to clean my way through school.”

He eventually worked his way from cleaner to president, a role he’d had for 10 years prior to his takeover. It always had been assumed Rick would take over once Henry was prepared to retire, but the younger Sanchez says he felt no pressure to do so.

Putting pressure on the kids to take over can ruin both family and business relationships, Fleming says. Unfortunately, sometimes the parents are so determined to leave a legacy for their children, some pressure is unavoidable. In that case, Fleming says it’s up to the children to tell their parents they don’t want the business.

“The best way is to be straightforward,” Fleming says. “Be positive, tell the parents how much you respect all they’ve accomplished with the business, but that your interests lie elsewhere. It’s better to get this out of the way as soon as possible.”

In fact, Fleming recommends children — especially those being considered for succession — pursue other interests before even going to work for the family business. That may alleviate the pressure before it starts, but also can help the second generation build experience, should they decide to work for their parents’ company.

“Outside experience tends to instill confidence because their accomplishments elsewhere were solely through their own efforts,” says Fleming. “They need all the confidence they can get when taking over. Also, they are more likely to have been exposed to a wider array of ideas than had they worked solely for their family’s business.”

Terry Woodley agrees. As vice president of Woodley Building Maintenance, Kansas City, Mo., he hasn’t taken over for his parents yet, but believes his outside experience only can help him. Woodley worked for several years as an auditor and certified public accountant, and later as a chief financial officer.

He credits his prior jobs with giving him perspective he wouldn’t have had he gone to work for his parents right away. In fact, he only came to the business five years ago.

“As an independent auditor, I worked with 15 or 20 clients a year. I saw what everyone else did, and what worked,” Woodley explains. “I could also see what not to do.”

Passing the torch
Adequate preparation for the years leading up to a succession can help tremendously, but the actual transition still can be hard.

A big decision both generations of leaders should make is in what capacity, and for how long, should the parent continue to serve with the company. Some business owners cash out and retire, while others take a seat on the board and remain deeply involved in day-to-day operations. Both options do have their merit, says Fleming.

“A parent who stays with the business often has an extensive network of contacts with key suppliers and customers,” says Fleming. “He or she carries a lot of collective wisdom and knowledge in their head.

But long-tenured employees might look to “dad” rather then the person now running the company.

“It’s too easy for their very presence to undermine the authority of the person who’s supposed to be running the company,” Fleming warns, adding that the parent might have a strong desire to meddle.

Fleming suggests a “graduated succession and retirement” strategy. In this, the outgoing owner begins taking longer vacations prior to retirement, stepping back slowly in a series of “dress rehearsals” before leaving the business for good.

This blended technique gives the parents the opportunity to prepare for their retirement, and ease their mind by allowing them to see the business can function in their absence. The successors benefit because the plan provides them an opportunity to build their confidence and demonstrate their competency while there still is a safety net.

Luckily, Sanchez has had success while his father has remained on the company’s board and still takes an active, day-to-day role.

Sanchez credits his close relationship with and admiration of his father with his business success. In fact, after he assumed the CEO title, he consciously decided to keep his father’s policies and styles in place.

While that management style has worked for Acme, it may not be the best tactic for everyone, and change may be necessary, Fleming cautions. In his book, Fleming warns new owners not to be afraid of changing policies out of loyalty to their parents. But these changes should be approached cautiously.

“Be competent. Work hard. Phase in the changes,” Fleming advises. “Often, employees are fearful and resistant to change. Don’t try to ram new ways of doing things down their throats.”

Doing things differently from parents, if handled properly, also can be a great way for the child to assert his or her competency.

Even in the best of situations, the new leaders will still have anxieties about the success of their business in their parents’ absence.

“The obstacles, for me, have been emotional,” says Sanchez. “Now I have 1,300 other people — who I’ve always felt somewhat responsible for — but now it’s my job to make or break them.”

Woodley’s biggest concern about taking over is ensuring the business will thrive.

“This business has been around for more than 30 years,” he says. “I want to ensure the company will be here another 30, with our name and our reputation.”

Still, he’s looking forward to the challenge of taking over a business, especially preparing for both personal and professional growth.




POSTED ON: 7/1/2001