Loyd Rawls

If They Don’t Have What it Takes, Sale is a Viable Succession Planning Alternative
January 7, 2008

I commonly encounter a sense of obligation from my clients regarding the continuity of their business to their children. This legacy preservation instinct appears to obscure, flashing warning signs that their kids are not qualified successors. Even as rationality dominates business operations, in about 25% of the family businesses, family emotions overtake business reasoning. With tolerance far beyond what is shown toward managers and employees, some emotion-laden owners show astonishing patience with children who openly profess entitlement of income, authority and ownership, while not taking responsibility for their actions or apathy. Consequently, it becomes blatantly obvious to everyone but the parents that these heir-do-wells lack the capacity to be an owner/leader/successor, and the sale of the business to a qualified buyer would be the appropriate stewardship initiative.

Business succession is a golden opportunity, not an inalienable right. Succession correlates to a relay race: there must be a commitment to preparation; the runner must place and release; and the relay runner must aggressively take the baton with a commitment to win. Similarly, succession is a team event that requires commitment, capacity and competency.

During times of stress, owners usually admit they recognize their children are not ready for succession leadership. However, in most cases, an overwhelming sense of guilt regarding their children’s shortfalls distorts their wise judgment and drives the “enablement cycle” of short lived personal gratification for helping children, followed by long term frustration from increasing awareness that the welfare of family, employees and vendors are in harm’s way if the family successors ever assume control.

As a result of the enablement cycle:

• Prospective successors never get realistic feedback;
• Coaching is rare;
• Accountability is nowhere to be found;
• The business comes under a cloud of uncertainty and insecurity by Key Managers, Partners, Vendors and Lenders.

It is reasonable for an owner to regret that children are not prepared to be successors, or even assume responsibility. However, it is both unreasonable and unfair for an owner to take on the guilt that obscures the stewardship responsibility to engage a capable, competent and committed successor. As we will continue to discuss, this stewardship responsibility validates that the sale of a business is a viable succession alternative.

Next Posting: If you are planning to sell, why is a succession plan important?

Posted by Loyd Rawls on January 7, 2008 | Comments (0)