One of the most unique qualities of a family business is the way corporate leadership and successors are chosen. Unfortunately, too many family leaders do little more than check to see whether the last name of a potential successor is the same as their own. If it is, they mark the “succession planning” task complete and move on.
Not a good idea.
If there is a single reason only a small number of family firms survive into the third generation, it’s poor succession planning. Multiple research studies and vast experience tell us that preparing potential successors for future responsibility is one of the key elements in successful leadership transition.
Succession planning is not the only element, after all, relationships, trust, tax management and estate planning also play major roles. However, properly preparing a successor is not simple. It can start as early as before a successor’s birth, when a family leader begins developing traditions and stories that help convey values and principles to the next generation.
Formal education is one part of succession preparation that should not be ignored. Founders tend to assume that genetics plays a bigger role in business than it actually does. The fact that a successor is the son or daughter of the founder does not, by itself, predict future success. And, while founders of many flourishing family firms have only degrees from the University of Hard Knocks, getting a successor ready to carry the torch generally requires a more formal approach.
There are three excellent reasons to require potential successors to earn college diplomas in business or another related field:
- Classroom learning. There are many self-educated business leaders that would not scoff at “book learning”, but formal education exposes students to ideas, concepts and techniques that even street-savvy business people may not know. Higher education institutions instruct students in up-to-date financing methods, marketing practices and management systems. Thus well-trained successors can often help raise capital, reach new markets and manage more effectively by bringing back home what they learned at school.
- Relationship building. Relationships drive business success and spending years in the crucible of higher education lets potential successors forge lasting, invaluable connections with peers. Future strategic partners, investors, suppliers, advisors and even acquisition candidates can all spring from contacts made during the course of acquiring a formal education.
- Honest feedback. Potential successors rarely get honest feedback unless and until they leave the protective confines of the family firm. This is a problem because straight talk about their performance and contributions is necessary to help successors develop self-understanding, insight and confidence. Disinterested professors and competitive fellow students are happy to give otherwise well-protected family business heirs the kind of unfiltered evaluations that will help toughen them up for a world where they aren’t seen as untouchable.
However, even a straight-A transcript from an Ivy League college is not enough by itself to ensure smooth transition. Succession preparation can involve evaluating and, if necessary, mending relationships, building trust, mentoring and other factors, but don’t forget the schooling. Formal education should be part of every succession plan.
To learn more about how REGENERATION can help you put together an affective succession plan visit our website