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Aspen current thinking column


Spring 2013

September 2013 Column

Sunday, September 29, 2013

Seven Dimensions of Succession Planning in Family Business

When leaders of family businesses think about succession planning, typically they are thinking of who will replace the President or CEO. Some go further to think about who will own the business when the current owners are gone: succession of ownership. But we have found that transitions from one generation to another require succession in seven areas, not just those two. Any program for succession must encompass the following considerations:

1. Succession of Leadership

Organizations need leadership and effective organizations have a plan for both a thoughtful, step-by-step transition to a new leader as well as an emergency plan for an unanticipated transition.

When we think about leadership for a family business, it may be take a different form than other types of organizations. Leadership includes defining a vision for the future of the organization, developing a plan to get there and enrolling followers in collaborating to achieve the vision. In family businesses, the functions of leadership may be shared among owners and/or family members who run the business (these may or may not be the same people). Thus, transitions in leadership can be complex in that it may not be one leader passing the baton to a single successor.

The establishment of a board to help plan the transition of leadership (particularly when it is a situation where leadership will be shared) is an important tool. Often, the Board of Directors and the CEO share the leadership function. The Board, representing owners, may help to create the vision for the future of the business. The CEO is typically responsible for leading the charge.

2. Succession of Management

Leadership determines where the ship is going. Management assures that the proper steps are taken to get the ship to its destination. In small family businesses, the same person may serve as leader and manager of many functions. But oftentimes, he or she fails to step back and work on the business (i.e. leadership) vs. work in the business (i.e. management). Assuring that there is clarity of direction as well as the management to achieve it requires that succession planning be completed for all functions.

3. Succession of Authority

One of the challenges of closely held business, particularly entrepreneurial ventures, is the inability of a leader to let go of control. The leader may recognize the need to have a successor; that he won’t live forever. However, identifying a successor and letting him or her have the power and authority to take the business in new and different directions is another matter! We have found that there are two sides to letting go: first, the leader who is stepping down must have a compelling activity or project to move on to...He or she has to have roles or projects that take attention from the business he or she has led. Second, there must be a trusted successor whose knowledge, competence and values give the departing leader the confidence that his/her “baby” (the business) will be well cared for. Then—and only then—will authority be transferred. The presence of a trusted board of directors who will also be overseeing the successor helps as well.

4. Succession of Values

As alluded to above, for leadership succession to occur, a successor must demonstrate that his or her values are congruent with that of the predecessor. For example, if I have taken good care of my employees and they have been loyal to me and helped me build my business, I want to be sure that my successor places the same importance on caring for employees. I will not turn over the control of the business otherwise. If I believe that my success was due to micro-management of customer relationships, I will expect my successor to have that value as well.

One of the challenges we see between founding generation leaders and their successors (especially when the successor is an offspring) is a difference in value placed on “balance of life.” Entrepreneurs are known to be workaholics; their offspring often resent the absence of parent(s) because of the business. When they have their own families, they strive to have family time as well as business time. We often hear founders complain that their kids will ruin the business because they don’t work hard enough. Having a thorough dialogue about the values that will guide the business going forward and having the opportunity to observe some non-core values change and not destroy the business is essential to successful succession.

5. Succession of Knowledge

One reason leaders can’t let go is that they feel the successor doesn’t know enough. How can the successor be trusted to care for the business if he or she has not developed the knowledge and skills the founder had acquired while building the business? Frequently, the out-going leader is wonderful at building a business, but often not great at the “maintenance functions” such as planning and teaching. The next generation may have learned a lot over time, and have gotten formal education that helped, but the transition of knowledge and wisdom from elders may have been spotty.

It is critical that the succession planning process include an assessment of what competence and knowledge a leader will need to take the company where it is going rather than where it has been. Further, documenting what knowledge the elder feels is critical and developing a curriculum to assure the knowledge is transferred must occur. Finally, the younger generation must have clearly defined benchmarks that demonstrate the acquisition of required knowledge and skills to earn the trust of the prior generation of leadership.

6. Succession of Relationships

The transition also requires that key relationships be turned over to successors. Customers, suppliers, employees, owners and advisors must all see that the successor is truly in charge and leading the charge. If he or she is “President” in name only, the relationships will stay with the predecessor and the transition will fail.

The transition is a gradual process that requires effort both on the part of the departing leader as well as the successor. The successor will have to earn the trust of all of these stakeholders, which will be facilitated if the prior leader fully supports him/her. When a supplier makes a call to the founder, he or she must say, “Jane is now President and is handling the decision making in that area,” rather than falling into the habitual behavior of making the decision.

There is a loss experienced by those letting go of power, identity and relationships as one steps out of a leadership role. That is why it is so important to have the next stage of life designed to be interesting and engaging.

7. Succession of Ownership

Finally, succession of ownership is another component of transition from one generation to another. If this transition has not been considered many years prior to a transition happening, tax consequences may make the other transitions very difficult. Family relationships are often impacted by “who gets what.” If the business represents the largest asset of the current owners, there is often in inclination to share ownership with the next generation in the business as well as those who are not in the business. This can lead to sibling power struggles and frustration for all.

If the ownership transition is not structured well, the outgoing leader may not have sufficient capital to sustain his or her lifestyle, or the successor may not have a business sufficiently capitalized to continue successfully. There are many considerations and strategies that can lead to successful succession of ownership, which accountants, attorneys and financial planners address as they organize the business and plan for these transitions.

Planning Succession

These seven dimensions of succession planning should be addressed in a process that begins with a vision: what is the future that family envisions for itself and its assets. When the family considers this future together (rather than just the family leader), it increases the odds that the transition to the next generation will be successful. Having an open dialogue that includes the individual and collective dreams and goals of family members helps everyone consider how they can support each other in achieving individual dreams and how the family assets play into this future.

The open dialogue should be continued in exploring what talents and perspectives are needed in all roles in order to achieve a shared vision for the family and the business. Quite often, family members lack a clear understanding of the skills and dispositions required to successfully lead a business, particularly a family business. A careful assessment of talents needed and then discussion of this with the stakeholders will lead to greater probably of success in the business and harmony in the family.

Leslie will be presenting these concepts on a panel at the Arizona Community Foundation on October 2 and at the Hawaii Tax Institute on October 29.


August 2013 Column

Wednesday, August 07, 2013

Welcome to the New Aspen Family Business Group Website

Both our work and team have evolved and after 25 years it was time for us to refresh our image and update our website. We hope that you will find it easier to access us as well as our knowledge and that you will enjoy exploring our library of ideas. 

Among the changes is a new column entitled, “The Aspen Current Thinking Column.” Here, the AFBG partners and guests will periodically share new ideas and reflections with you. If you sign up for the column, we will let you know when we have posted a new paper!

We are also expanding our reach by collaborating with select colleagues around the world. Our newest associate, Burak Kocer, PhD, will work with us from his base in Istanbul, Turkey, to provide services in the Balkans, the Middle East and Central Asia. Burak has an impressive background in governance, as a professor, an independent director on several boards and as a consultant. Burak is using his prodigious linguistic abilities to help us develop new books in Turkish and English. He is also translating our existing books and newsletters into Turkish.


Are your family relationships the biggest liability that you are facing in your family business?

“The lower the level of differentiation, the more likely the family, when stressed, will regress to selfish, aggressive, and avoidance behaviors; [and] cohesiveness, altruism, and cooperativeness will break down.”  

-  Murray Bowen

In our annual AFBG Spring meetings, we invite a small group of colleagues to share new ideas and expand our thinking. In this year’s Spring meeting, we explored the topic of differentiation. The term “differentiation” describes the complex interaction of two forces in life: centrifugal force and gravitational force. Centrifugal force pushes things apart, while gravity holds things together.

Human behavior, emotions and thought processes emerge from the interaction of these two forces along a continuum that spans from enmeshed group thinking to rigid emotional cut off from those around you. Enmeshed families, where the gravitational pull is too great, have trouble allowing space in relationships and restrict independent action. Disengaged families are pushed apart by the centrifugal force and have little interaction among members. This is manifested in lack of communication, trust and collaboration.

Differentiation is also a very useful concept when applied to the study of subsystems in family businesses. We look at the family business both as a group of individuals striving for self-definition, and as a larger system composed of sub-systems (e.g. the Board of Directors, the shareholders, the successor generation, the in-laws, the employees, the management team, etc).

Differentiation relies on boundaries. An individual or sub-system that is well-differentiated is one with healthy boundaries. While functional boundaries may be permeable (i.e. allow for input from others), they are not so open that they are overwhelmed by the opinions, personalities or anxieties of others.

You are a well-differentiated individual if you:

  • Have a clear sense of purpose

  • Can separate your ideas from your emotions 

  • Do not have an excessive need for approval

  • Are able to manage your emotional state, i.e. be responsive, not emotionally reactive

  • Can stay calm and think clearly during a crisis

  • Have well-defined values and principles, which are consistently maintained in word and deed

  • Are a reflective decision-maker; thoughtful in consideration of others without caving to relationship pressures

  • Have the ability to maintain objectivity 

  • Can stay connected and civil even in disagreement 

  • Can make autonomous decisions and accept accountability for results 

  • Balance the rights and responsibilities of self and others

  • Possess the courage to make unpopular decisions for the sake of the greater good of the family and business

A well-differentiated system (or sub-system) is characterized by:

  • Clarity of boundaries, agreements (e.g. shareholder agreements), consequences, roles, authorities, goals, mission/vision and ownership of assets

  • Maintaining boundaries flexible enough to allow for the inflow of information, ideas, skills, etc.

  • The ability to be independent and stay connected to the rest of the system (communication processes, clarity of information flow)

  • High trust/low anxiety/open communication and sharing of knowledge, creativity and appropriate level of risk

  • An awareness of and adaptation to the environment (e.g. anticipating marketplace/outside forces) 

  • The ability to incorporate increasing complexity and internal specialization in response to organizational growth

The process of development of individuals progresses from undifferentiated to differentiated. As we mature, we move from being part of our mothers, to dependent upon our mothers and families, to being able to be more independent and ultimately, interdependent. Given adequate support, individuals can become better “differentiated.”

Similarly, business systems typically emerge from the mind of a creator (think entrepreneur) and as it grows, it can become more differentiated with effective structure, clearer organizational boundaries, job descriptions, etc. We see these kinds of processes in families, businesses, trusts and partnerships. Understanding the concept of differentiation helps us grasp the complexity of family businesses and provides a foundation for facilitating their growth.

The work of the Aspen Family Business Group is about helping families to learn how to become better differentiated through:

  • Clarification of individual, family and business purpose

  • Identification of core values

  • Creation of organizational structures, boundaries and processes

  • Facilitation of communication and constructive conflict resolution

In future columns, we will show you more about how to make your families an asset rather than a liability.

Welcome to the newly defined and designed Aspen Family Business Group Website!



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