3 Secrets behind successful succession planning no one will tell you
ILLUSTRATION BY RUTH MACAPAGAL
I recently had a conversation about succession with one of the 10 richest families in Asia at a dinner given in my honor. They asked me: “Tom, in your global experience of consulting for so many families and their business conglomerates, is the old Chinese saying true? The first generation builds wealth, the second generation preserves it, and the third generation squanders it.”
“Yes and no,” I answered. “The truth is that a lot of businesses do not know how to do proper succession planning. Most businesses are just one or two major strategic decisions away from breakthrough success or monumental failure. This explains why succession is so critical and if you get it wrong, it can lead to the implosion of your entire business.”
Failure requires adequate planning
So does success. And so does succession planning.
In any kind of business, dealing with succession is rarely a simple problem. But especially in family businesses, the effects are more upsetting because these enterprises frequently invest a lot more time, energy and blood into building the business. To watch it all disappear can leave a family scarred for generations to come.
As someone who has advised and consulted for many famous families and their business conglomerates, I will share a few key insights on what to do and what not to do from our experience of working with family businesses in the Philippines, in the region and around the world.
Key man insurance
Most families miss important elements in the equation, so it is no wonder why they end up contributing to the statistics behind the old Chinese proverb above.
Let’s start with a key finding in the consultancy work of my company: Most businesses rely too heavily on one or two key individuals. If they leave or die, the businesses start to implode.
A lot of owners think this is not relevant if they have great managers in their organization. But they ignore one key principle: As the king goes to sleep, so do his servants. The productivity of the CEO, the board and the top management have a direct influence on the productivity of all the ranks below. The productivity and performance of the people at the top are the biggest influence on everybody else’s performance in an organization.
The secret: principles
In my practice, I have seen again and again how hard it is for the key man or woman to relinquish power. Often, however, it is not what most people think it is. It is not some frantic clinging to power because they are hungry for more, or because they cannot let go. It is because on some level, they realize that they are still fundamentally needed for the business (conglomerate) to succeed. And they are right—most of the time!
What is the solution then? The solution is to do what most businesses do not do adequately: write down and define the success principles that got the owner to where the business is today.
If you are such an owner, chances are you never took the time to analyze: what are the principles that govern your decision-making? What are the principles behind your successes and failures?
Think of it this way. If someone else were to take over tomorrow, and that person had to be your exact clone, you would need to transfer your way of thinking to that person. Do not think of succession like most businesses do: in terms of a job description. That’s the wrong approach!
Think of it in terms of passing on your way of thinking. And the best way to do that is to write down a collection of principles that have guided your decision-making and successes. Also, write down what you have learned from your failures, and what the principles are that result from these learnings.
Why this is so effective
To explain fully why this is so effective, let us look at two other principles that I have shared before that are fundamental in this process:
1. Great executives are made, not born. This is great news because it means you can train someone to become a great CEO, president or chair of your company—no matter if that person is family or not.
2. It is not the hours that you put in, it is the quality of your decisions that counts. This is also great news because it means that someone else can still do a great job even if that person is missing decades of your wealth of experience. You can teach someone else to make great decisions. And the best way to do this is through principles and examples.
What not to do— holding on to the reign
An extreme example comes from one of our Middle Eastern clients who called us for support after the death of the second generation family head. They are a famous billionaire family that has produced several iconic brands in the past. Today, the family could not be more divided. After the founder who had laid the foundation for the family’s wealth passed away, a second generation dictator took over and ruled with an iron fist. So much so that none of the other family members or siblings had any insight into the dealings of the company, its profitability, earnings, etc.
After he suddenly passed away, the whole family was in shambles: constant conflict. Meanwhile, the management board of “yes” men that the second generation authoritarian ruler had put in place kept spending money like crazy because suddenly, there was no one in charge. Chaos.
And guess what? Neither the founder nor the second generation ruler had bothered to put their wisdom and experiences into easy-to-apply principles and examples. So it was no wonder that third generation members put more effort into catering to their flashy Instagram profiles and images of supercars and expensive houses. What a shame.
How to write down principles
As I always stress with our clients, complexity is the kiss of death of execution. You need to keep it simple! Find out what has worked for you and the business in the past, systematize it, then make it simple enough to follow through.
Document what works so nobody depends on your brain and experience to replicate your successes.
Continue that practice until you step away from the business fully and let someone else take over the reins. Once you have your collection of principles and examples written down, you will have much more peace of mind and not succumb to the fate of so many owners and family heads around the world who can never fully let go.
Three to thrive
If you are a business owner or head of a business, write down a collection of principles that have guided your decision-making and created your successes.
Also write down what you have learned from your failures, and what the principles are that resulted from these learnings.
Once you have that collection in place, you can start teaching someone else to take over. If possible, include examples together with each one of the principles. Remember: the person has to do your job! So you need to allow him or her a complete look into your unique way of thinking that got you and the business to where you are today. INQ
Tom Oliver, a “global management guru” (Bloomberg), is the chair of The Tom Oliver Group, the trusted advisor and counselor to many of the world’s most influential family businesses, medium-sized enterprises, market leaders and global conglomerates. For more information and inquiries: www.TomOliverGroup.com or email
