succession & the transfer of power

HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Succession & Transfer of PowerWhat Happens When The Founder Leaves

HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

Review of Last Few Weeks Over the past few weeks, we have set the stage for helping

you to understand how family based businesses operated We have discussed the impact of different organizational

structures We have discussed the difference between different types of

management structures In the last lecture, we set the stage for how family influence

impacts business In this week’s lecture, we are going to look at the impact of

succession on a family business and the different roles that we can expect to emerge


But first…

The Course Project


As you all know, the first submission was due on the 8th of November...


Many of you missed the submission


If I don’t have your project submission by midnight Thursday – that’s 12 am Thursday – you lose half the points for the submission.


If I don’t have it by midnight Saturday – 12 am Saturday – you lose all the points for the first submission and I will not consider your project throughout the semester


So in essence, you will fail the entire course project if you miss this submission on Saturday midnight


Questions?


Succession & the Transfer of PowerThis Week’s Lecture


A CEO has a mandate to drive the success of a business – that is first and foremost.


They also have the responsibility of keeping the family company competitive.


But in family businesses, they have the problem (or challenge) to fulfill the long-term mandate of institutionalizing the enterprise


What does that mean – institutionalizing the enterprise?


It means building great companies that will thrive from generation to generation.


CEO as Governance


The blurred boundaries that we discussed in lectures 2 and 3 are the biggest reason for the need to build institutions to govern the relationships between family, ownership and management.


If family rules become business rules, conflict is avoided, but problem solving is diminished and costs are incurred


If the pattern continues, no amount of succession can ensure the continuation of the business for the next generation.


Do you understand what I just said?


Business is not about family rules. It’s about developing systems that work in good times and bad times.


Sadly, this is the one thing that most CEOs don’t focus on – the building of institutions of governance


Family CEOs perceive the business in a significantly more positive light than do other family members


They are also more interested in business/succession planning, communication, growth strategies, career opportunities and effectiveness in boards


But when everything is going well, they are not interested in building the institution that the business should become just in case they are gone tomorrow


CEOs believe that there is clarity and understanding among family members of succession requirements and the manner that it will be transferred


The Transfer of Power


CEOs preparing to transfer power do not, single-handedly, have to make succession happen


They may also not be one of those who want it to happen


Studies show that CEOs in family-controlled enterprises are prone to long tenures and even entrenchment


By not making way for the future generations, these CEOs tend to seriously weaken the company’s ability to continue across generations


But we have to understand that the transfer of power is not easy in any setting – whether corporate or family


For many, the drive for power is as much a life force as the needs to achieve and to be loved


In a family business, transfer of power is further complicated by the demands of family relationships and the sheer potency of ownership


So in a family business, it’s not just passing the management to the next generation, it’s also a matter of passing on the family leadership and ownership control


I’ll take you back to the example I gave you with the Louisville Courier-Journal and the Binghams


Barry Bingham Jr had been appointed President of the Louisville Courier-Journal, but his father Barry Bingham Sr still retained majority control


He had voted his daughters on the board and decided to sell the company without consulting Barry Jr.


In other cases, significant ownership stakes have been passed on to the next generation without passing on any real voting power or control


When this happens – controlling ownership and top management posts being kept by the previous generation – make a mockery of the transfers of power


Also, since future generations are not trained or prepared for company leadership many problems can occur


My reason for telling you all of this…


The transfer of power needs to be uniquely designed for each family and business in such a way that family leadership, ownership control and company management are part of it


CEO as an Architect of Succession


CEOs who have developed a winning succession in a business do not fit the profile of the hero portrayed in Hollywood movies


Instead, they are modest, substantive entrepreneurs or serious professionals with a mission


They care more about doing the right thing for the company and its continuity that about promoting their own egos or agendas


CEOs of family businesses are building companies to last, so they can’t afford to be narcissistic, spotlight-hungry performers


They are stewards of a legacy that has a life of its own with a value beyond that of the individual CEO


They typically take the role of an architect as they transfer their vision into reality


They must enlist the right people and then execute the right strategies to ensure both sustainability and continuity


Samuel Curtis Johnson III, the 4th generation CEO of SC Johnson, came into the realization that he had to be the architect of the transition


Herbert Fisk Johnson, the 2nd generation President of SC Johnson, died suddenly in 1928 without leaving a will


A battle started between siblings ultimately gave 60-40 majority control to Herbert Fisk Johnson Jr, Samuel Curtis’s father


Samuel III still remembers the 10 long years that it took his father to settle his grandfather’s estate


As a result, his father vowed not to do that to his son, and Samuel Curtis vowed not to do that to his sons and daughters either


Once the right people were in place, the strategies for the various divisions were working and the institutions for governing the relationship between business and family were in place


Samuel Curtis Johnson III decided it was time to retire


CEO Exit Styles and the Transfer of Power


There are 6 styles that are most common when a CEO exits a company


They are:

The Monarch, The General, The Ambassador, The Governor, The Inventor and The Transitional Czar


The Monarch


Kings and queens rule for life – they have no retirement provision in the law


They have no expectation of early departure to compensate them for years and years of presiding over wars, social unrest and leading visible and demanding socio-political lives


Since succession can not take place while the Monarch is alive, palace revolts and death by poisoning are common


Monarch operate with the assumption that they will die with their crowns on


Many business owners are guided by the same principle. Years after the retirement age of 65, they show up daily at work to read the mail, make calls and…


To reverse decisions made over the past 24 hours they disagree with


Effectively, they rule the company during a 3 – 4 hour workday


Monarchs hire and fire a whole series of aspiring general managers, presidents and Chief Operating Officers


The better they are, the faster they go because monarchs don’t imagine anyone could ever replace them.


They definitely don’t talk about succession, nor do they set a date for departure or a deadline for change in responsibility


They genuinely seem to believe that illness and death are things that happen only to others