As I write this newsletter, I have insights into several businesses where transition issues are somewhat of a hot topic. Frankly, this isn’t an area on which I focus but I have dealt with it over the years.
The differences in approach are striking. Of the businesses that are actively working transition issues, one has recently instituted monthly financial review meetings (which I recommend for all of my companies). It is a family business and these meetings include the active involvement of the “next generation”. Topics include not only recent financial performance compared to budget and prior period, but long term capital structure and financing issues. While there is no stated transition plan in place as of this point in time, when that time comes the next generation will be able step into more senior leadership positions with a long background of the financial position of the firm and how decisions were made previously. While the senior generation is still in charge, the next generation has a voice.
Another business which is not family owned has quarterly shareholder meetings. While not as in-depth as the monthly meetings discussed above, they provide sufficient information to the shareholder group to allow them understand both recent and long-term financial performance. And while not a decision making group except where matters require a rare shareholder vote, there is an open discussion on various long term matters and shareholder input is solicited. As the next generation of leadership will most likely come from this group, they will be well poised to start to take on a more active role in management when the time comes.
Finally, there is a family business where the next generation has little active role in management decisions and very limited access to the financial performance of the firm. They aren’t much more involved than the average employee in terms of management or strategic thinking nor do they have a long term incentive or profit participation plan. It’s difficult for them to see how their inputs (labor) contribute to the output (profitability) of the business. The result is an environment that is somewhat less than motivating. Whereas in both of the above examples, people have a true sense of ownership and are learning to act accordingly.
When the time finally comes for a transition, the first two businesses will have people who are well grounded in the management, strategy and capital structure of the company. In the third case, this is going to be a challenge. I have no doubt that those that ultimately take over running the third business will find some surprises (probably some good and some bad) as they start to discover how the firm was managed.
Worse, what if the transition is forced to occur suddenly to due unforeseen circumstances; two of these businesses will have a much better shot at surviving a sudden and unforeseen transition than will the third.
Whether you are a small privately held business or a large multi-national, developing new leaders is a critical component of ensuring the long term survival of the business.
Hear more on leadership in my conversation with my friend and colleague, Joe Scherrer (Retired Colonel and 24-year Air Force Veteran) at The Leadership Crucible where there are some tremendous leadership lessons and examples. You can also get a free download of Joe’s book, The Leadership Forge.
If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to [email protected]com The archive of these monthly newsletters is posted at the Resources section of homza.com
your cash is flowing. know where.® Ken Homza Copyright @ 2016 Homza Consulting, Inc.