In a recent episode of the Driven by DCKAP podcast, I had the privilege of speaking with Kathryn Seymour, the President and CEO of First Supply, a fifth-generation family business. Our conversation shed light on the essential role that family governance and succession planning play in ensuring the longevity and success of family-owned enterprises. It was a truly insightful discussion that I’m excited to share with you.
Kathryn stressed that succession planning affects every part of the organization. “All 701 people have a succession plan about where they want to go in the business,” she shared, highlighting the company’s commitment to employee growth and preparedness for transitions. This comprehensive approach ensures that the company is always ready for change, whether it’s a planned promotion or an unexpected vacancy.
Running a family business is different from running any other type of organization. It’s not just about numbers and profits. It’s about legacy, relationships, and navigating the complex dynamics of family. When it’s time for a leader to step down, things can get tricky. That’s where succession planning steps in. It ensures the right person is prepared to take the reins, the transition goes smoothly, and family harmony remains intact.
Think of it like this: you’ve spent years building something amazing. Succession planning is like crafting a detailed map to ensure that the journey continues successfully, even when you’re no longer at the helm.
Why You Need Succession Planning
You might be thinking, “I’ve got plenty of time to worry about that!” or, “My kids will figure it out.” But starting early is crucial. Here’s why::
- Smooth Transition: A well-defined plan minimizes disruptions when the time comes for a change in leadership. This is especially important in family businesses, where emotions can run high.
- Business Continuity: Succession planning ensures the business keeps running smoothly, maintaining its value and reputation. You don’t want years of hard work to unravel due to a poorly managed transition.
- Prepared Successors: It allows you to identify and train potential successors, equipping them with the skills and knowledge they need to lead. This means they’ll be ready to hit the ground running, rather than learning on the fly.
- Family Harmony: Open communication and a clear plan can reduce conflict and misunderstandings among family members. This is perhaps the most crucial aspect, as family rifts can tear a business apart.
- Attracting Talent: A solid succession plan can attract and retain talented employees who see a future with the company. They’ll know the business is stable and has a clear path forward.
As Kathryn stated, having a succession plan is “the greatest gift” an organization can have. When her father had a stroke, the pre-existing plan allowed for a seamless transition, demonstrating its immense value in times of crisis.
When Should You Start Planning?
Experts recommend starting succession planning at least 5-10 years before you plan to step down. This gives you ample time to:
- Identify potential successors: Evaluate family members or even external candidates who might be a good fit.
- Provide training and mentorship: Equip your chosen successor with the necessary skills and knowledge.
- Gradually transition responsibilities: Allow your successor to take on increasing levels of responsibility over time.
- Develop a governance structure: Establish clear roles, responsibilities, and decision-making processes.
- Communicate openly with the family: Ensure everyone is on the same page and understands the plan.
Also see: Navigating Family Business Dynamics in Distribution Industry
Key Elements of a Successful Succession Plan
What does a good succession plan actually look like? Here are some essential elements:
1. Identify Potential Successors
- Family Members: Consider family members who have the interest, skills, and dedication to lead the business. Offer them opportunities for education, training, and experience in various departments.
- External Candidates: Don’t rule out external candidates if no family member is ready or suitable. An experienced manager can bring fresh perspectives and professional expertise.
2. Assess Skills and Qualifications
- Identify critical roles: Determine which positions require succession planning and what skills are needed to fill them
- Evaluate potential successors: Assess their strengths, weaknesses, and areas for development.
3. Develop a Training and Mentorship Program
- Internal training: Provide hands-on experience in different aspects of the business.
- External education: Encourage successors to pursue relevant degrees or certifications, such as an MBA.
- Mentorship: Pair successors with experienced leaders who can provide guidance and support.
4. Create a Governance Structure
- Family Council: Establish a family council to address family-related issues and maintain open communication.
- Board of Directors: Form a professional board of directors (including non-family members) to govern the business.
- Clearly define roles: Delineate the roles and responsibilities of each body to avoid confusion and conflict.
5. Develop a Transition Plan
- Gradual transition: Gradually hand over responsibilities to the successor, starting with smaller areas and progressively increasing the scope3.
- Regular feedback: Provide regular feedback and adjust the plan as needed.
- Document the plan: Put the succession plan in writing, outlining roles, responsibilities, and timelines.
Real-World Examples of Succession Planning Done Right
Let’s look at some real-world examples:
- Walmart: The Walton family has successfully managed multiple generations of CEOs, balancing between family and professional management. They use a trust and a Family Council to ensure open communication and decision-making.
- Ford Motor Company:The Ford family has navigated leadership transitions well, even bringing in external leadership when necessary. Alan Mulally’s leadership in 2006 was pivotal in helping Ford avoid bankruptcy and plan for a stable future.
- BMW: The Quandt family, which owns nearly 50% of BMW, has planned for years to ensure smooth leadership changes, allowing the company to maintain its global dominance.
Family Governance: The Glue That Holds It All Together
You may have noticed the term “family governance” popping up. So, what exactly is it? Family governance refers to the structures and processes that families use to make decisions about their business and their wealth. It’s about creating a framework for communication, conflict resolution, and long-term planning.
Kathryn Seymour emphasized the importance of family governance at First Supply. They work with the John Ward Institute to ensure that family members from multiple generations are informed about the business’s practices and values. This helps create a “common language” that allows the family to act as responsible stewards of the business.
Key elements of family governance include:
- Family Constitution: A written document that outlines the family’s values, goals, and principles.
- Family Council: A representative body that provides a forum for family members to discuss business-related issues.
- Shareholders’ Agreement: A legal document that governs the relationship between shareholders and the company.
- Succession Plan: A plan for transferring ownership and leadership to the next generation.
Why is Succession Planning Crucial for Distributors?
- Ensures Business Continuity: In the fast-paced world of distribution, any disruption can lead to significant losses. A well-thought-out succession plan ensures that operations continue smoothly during leadership transitions. As noted in research, “succession planning facilitates change,” allowing businesses to fill leadership gaps without too much interruption.
- Builds a Talent Pipeline: The distribution industry faces a talent shortage, particularly as many baby boomer executives approach retirement. Succession planning helps organizations identify and groom future leaders from within their ranks, ensuring that they have the right people ready to step into key roles when needed.
- Identifies Skill Gaps: As distributors evolve, so do the skills required for success. Succession planning allows companies to assess current skill sets and identify areas where additional training is needed. This proactive approach helps ensure that future leaders are equipped with the necessary competencies to drive the business forward.
- Mitigates Risks: Sudden departures due to illness or personal reasons can leave a company vulnerable. Having a succession plan in place reduces this risk by ensuring that there are capable individuals ready to step up when needed.
- Fosters Family Harmony in Family-Owned Distributors: For family-owned distribution businesses, maintaining harmony among family members during leadership transitions is crucial. A clear succession plan helps prevent conflicts by outlining roles and expectations, ensuring that all family members understand their responsibilities,
The Enduring Legacy
Succession planning is a way to preserve your family’s legacy and ensure that your business continues to thrive for generations to come. By taking the time to plan carefully, communicate openly, and prepare your successors, you can create a smooth transition and set your family business up for long-term success. And this a responsibility worth planning for.
Contents
