The Sixth Commandment Of Family Business Succession: Evaluate A Successor

Jacob M Engel, Prosperous Leaders = Prosperous Business.CEO Coach | Consultant | You too can achieve success

Evaluating a successor is one of the most (if not the most) difficult challenges of any CEO, especially in a family-owned business. In fact, it's been said that the test of a successful CEO is how well he or she brings on a successor.

The challenges can be quite a few; I will enumerate some of the more common ones.

1. The current CEO has not decided to move up or on.

This means they are still undecided on if and when to make a move, usually up as chairman or out.

Successor CEOs, especially talented ones, do not want to wait in the wings for indefinite amounts of time. Often times in such cases, the good CEOs leave and there is a power grab between siblings or other family members.

2. There are multiple family members involved in the business and more than one believes they are a candidate.

Alternatively, other family (or non-family) members may not be aware of the succession plan or are not happy with the choice.

This will create either a power struggle or a power vacuum, both detrimental to the business. In both cases, the smoother the transition, the less stress it puts on the company and its employees. Employees need to feel safe, (see Maslow’s pyramid), psychological safety included. If they experience too much uncertainty or internal struggles, eventually, they will also leave.

3. Pay and authority are not agreed upon.

Pay in a family business is a sensitive topic fraught with danger. There are a few different ways pay can be constructed in a family business, but too often, it’s emotion-based, not meritocracy based. It should be the latter and set by the board. That same board will usually hire the new CEO and create a pay package with incentives.

How Are You Choosing Your Successor?

According to Dr. David Keirsey in Please Understand Me, certain personalities are either more suitable or not suitable for leadership.

While I’m not trying to get into a debate about whether leaders are born or made, according to Keirsey, it’s more inborn than learned. Certain inborn personalities have a greater draw and success towards leadership, as the characteristics of great leadership are creating the vision, implementing it and holding people accountable to it.

Not every person can create a vision, or the right vision, especially if they are not big picture-oriented. Not every person can implement a vision, especially if they are scattered and unfocused. Not every person can hold people accountable in the right way, especially if they are forgiving and soft by nature. While nature is only part of who we are, it does play a significant role, according to Keirsey.

The other part is our nurture or learned behaviors. This means if we have dysfunctional or inconsistent behaviors such as moodiness, anger, or other habits like talking and not listening or being very demanding or demeaning, these all make for bad leadership.

Today, many companies are big believers in testing for emotional intelligence (EQ).

EQ, according to Professor Daniel Goleman, is the ability to:

1. Recognize, understand and manage our own emotions.

2. Recognize, understand and influence the emotions of others.

When choosing a successor, you want to incorporate experience, knowledge of the industry and the ability to lead as a litmus test. In order to achieve that, you need a few critical things in place.

As I mentioned in my previous articles, the first is a succession plan. The earlier you start, the easier and better the succession.

Then, you need to have a board to help evaluate the successor and guide him/her through the many steps needed to fit into the CEO’s shoes. A coach can be helpful during the transition and have the successor go through specific trainings. There are also some great family business institutes that will help family businesses in their succession planning.

The board should then be transparent about their decision making and work alongside other family members and senior managers to ensure buy-in.

Remember, plan early, have a board, assess the candidates, train and enjoy the process!