How to decide which child will be the successor to your family-owned business

Last month, we began a series on the four phases of succession planning for family-owned businesses. We explored the initiation phase – that period when it begins to become apparent whether a child or other family member will eventually fill your shoes as head of the organization.

This time around we’ll take a look at the selection process, perhaps the most difficult step of the entire course of transition, especially if it comes down to choosing among a number of children. And there’s an additional challenge if none of the children is or will be ready to take the helm…or if there’s a better choice outside the family.

Chalk it up to “just the way it is” but if the next generation leader is one of several children, the selection may be construed by siblings as “oh, sure, he was always your favorite.” This perception can be disastrous to the entire family unit and as such, some business owners avoid the issue, adopting the attitude of “let them figure it out when I’m gone.”

And then there are those who favor the “eldest takes all” approach. In some cases, however, the oldest may not be the best qualified, so placing restrictions – be it age or gender – on succession is rarely the best idea.

To keep things fair, family-business owners may want to embrace a successor selection model developed for corporate executive succession. In this model, the family business leaders can develop company objectives and goals for the future head of the company – essentially a job description that spells out specific results, skills, education, experience, and possibly even personality traits.

For example, if a business has set its sights on significant growth in the next five years, the potential successor would be required to have a thorough understanding of business operations, business development, valuations and financial statements, in addition to the ability to negotiate and good relationships with banking and lending institutions.

There are many benefits to designing such a job description. First, it removes the emotional aspect from the selection process; second it provides the business with a set of future objectives; and lastly, the company founder can rest easier knowing goals are in place that will ensure a growing, healthy business.

Next month we’ll delve into the successor training/education process – yet another delicate matter that is often best left to someone other than the owner.

About our Benefits Installment Author: James E. (Jim) Moniz, CEO of Northeast VisionLink, a Massachusetts firm that specializes in structuring executive compensation. James E. Moniz is a national speaker on the topic of wealth management and on executive compensation. Jim Moniz will be presenting at this years SHRM conference in Phoenx, be sure to check out our presentation: “Creating and Sustaining a Competitive Advantage, The Role and Impact of Effective Compensation and Rewards Strategies”

Five Ways To Tell If Your Company’s CEO Earns His/Her Pay

Dr. Linda Henman isn’t as concerned about CEOs getting paid large salaries as much as she is about them being worth it.

CEOs earned an average annual paycheck of $11 million in 2010, with pay soaring by an average of 23 percent last year, according to research released by the AFL-CIO in April. As the economy’s sluggish recovery has analysts worried, Henman, a consultant for Fortune 500 CEOs, believes that company top dogs who actually earn their money are easy to spot.

“Those at the top have three major responsibilities: Develop the business, grow talent, and make decisions that drive innovation,” said Henman, also author of Landing in the Executive Chair: How to Excel in the Hot Seat (www.careerpress.com). “There is much shuffling at the top. Too often Boards don’t make wise decisions about CEOs and CFOs, and these executives, in turn, don’t make wise hiring decisions throughout the enterprise. But if leaders do a better job, companies can do a better job, which means individuals can do a better job. These leaders create companies where customers want to do business and people can do their best work. That all leads to financial health on the micro level, which translates to better financial health for the country. That’s why I think it’s important for people to understand if their CEO evidences the ability to soar above the competition, because in the end, only the strong will survive.”

Henman’s top qualities of a good CEO include:

Strategy – Strong strategic thinking defines the effective CEO. These leaders understand how to match a strong strategy with the tactics and talent to see it through. CEOS who constantly react to events, instead of planning for the future, remain followers and not leaders.

Decisions – When CEOs consistently make good decisions, little else matters; when they make bad decisions, nothing else matters. Even though decisiveness distinguishes leaders from everyone else, effective decision-making stands at the center of executive leadership. A decisive CEO who can’t hit the target is the same as an indecisive CEO who doesn’t even know where to find it. The results are the same.

Hiring – Successful CEOs know how to tie talent to their strategies so they ensures the company hires the best and the brightest and compensates them fairly. Moreover, they give these people a chance to thrive.

Excellence – Leaders who attract and retain top talent stress excellence. They focus on good execution of plans and strategies, and they don’t skew the mission by placing value on tertiary issues that have little to do with execution of strategic goals.

Results Orientation – Too many executives talk about how to motivate the troops. Those who excel in the hot seat do better. They hire people who are self-motivated, define clear objectives, hold people accountable, and then they get out of the way. Couple these practices with challenging, rewarding work, and the organization ends up with both better results and motivated employees.

“It all comes down to leadership, as opposed to management,” Henman added. “Managers come in all different flavors: good, bad, neutral, ineffective, overbearing, innocuous, and more. But true leaders, by definition, move people to perform at levels that allow them to beat the competition. Moreover, leadership doesn’t necessarily come with a title or a status. Responsibility and accountability come with that title, but leading requires the ability to take people to places they wouldn’t have gone if you hadn’t been in the picture. Leaders who possess this ability offer golden opportunities for their organizations and the people who work in them; those who don’t simply hope for a good golden parachute.”

About our guest author:
Dr. Linda Henman holds a Ph.D. in organizational systems, two Master of Arts degrees in both interpersonal communication and organization development, and a Bachelor of Science degree in communication. For more than 30 years, Dr. Linda Henman has helped executives in military organizations, small businesses, and Fortune 500 Companies define their direction and select the best people to put their strategies in motion. She has helped clients in the retail, financial services, food, medical, hospitality, manufacturing, and technology industries. Some of her major clients include Tyson Foods, Emerson Electric, Kraft Foods, Boeing Aircraft, Estee Lauder, and Merrill Lynch. She was one of eight experts chosen to work directly with John Tyson on his succession plan after his company’s acquisition of International Beef Products, one of the most successful mergers of the 21st Century.

A Perfect Synthesis

Despite careful planning, organizations often run into certain problems when attempting to do company wide 360 Degree Feedback projects. Typically, these problems involve excess time consumption, low participation rates, as well as complaints from participants about, among other things, the validity, purpose, confidentiality or value of the project. While most of these problems can be addressed in well organized "kick off" meetings, email communications, instructional documents and the like, some (but certainly not all) organizations come to feel as though the ultimate payoff is not worth the headache of trying to get several hundred participants "on board".

In response, HR-Meter has devised a solution for organizations who want the company wide benefits associated with 360 Degree Feedback yet wish to avoid or minimize the time, monetary consumption as well as the headache associated with such a task.

Department Focus 360 is the perfect synthesis of organizational employee satisfaction surveying and individual focus 360 Degree Feedback. Department Focus 360 is based on the same concepts that make multi-rater feedback of individuals so effective. In Department Focus 360 an entire department is treated as a single entity or individual. The department is assessed by it's constituent employees (much like a self review), its department heads (much like a manager's review) as well as other departments within the organization (much like a peer review).

The result is much like you would expect from a standard 360 Degree Feedback. A report is generated that details the strengths and areas for improvement of the department as a whole. Department heads disseminate the data to managers and supervisors who, in turn, express to employees what changes they would like to see on the basis of the results. At the same time, employees are given an opportunity for meaningful engagement. Our research has shown that organizations are significantly more likely to have a high acceptance of changes to day-to-day operations (such as those being handed down in response to the results of Department Focus 360) if those changes are the result of feedback coming directly from employees.

Once the initial data is in, repeated assessment of departments can be used to track improvement and highlight stubborn issues that may need a more local remedy (such as training or coaching).

You can learn more about Department Focus 360 by visiting HR-Meter.com