Last Updated on Thursday, 28 April, 2022 at 9:55 am by Andre Camilleri
Silvan Mifsud is director of Advisory at EMCS Tax & Advisory
When speaking about succession planning in family businesses, many times we focus on the need to plan early, on making sure that the priorities and skills of the identified successor/s are well aligned with the needs of the business, on the need of setting up corporate governance and internal structuring as a way to have successful succession planning… and much more.
We many times overlook issues related to when the present leader arrives at the point where he or she does not remain as functional as they used to be. It could be due to age or due to the fact that they lost touch with the fast changing external environment. It is likely that such a leader starts making bad decisions and mistakes, misses opportunities and displays behaviours and attitudes that are inappropriate for their position of power, negatively impacting the people and the business.
This is where things get very tricky.
Pushing out a present senior leader of a family business who is likely to be one of the owners, if not THE owner, is very tricky, making it almost impossible to challenge or even bring up a concern. I have seen very uncomfortable quarrels based on control among “old” and “new” family members in meeting rooms, boardrooms, through emails or worse still in court.
So, what strategies can a family business employ when a leader is no longer capable of leading the organisation in the way they once did? Here are some insights:
- Bring in a trusted third party (consultant) to help make decisions: Discussions between the present leader and siblings, children or cousins who are concerned but may not have formal authority will be fraught with emotions. The leader, who likely sees himself/herself as having been responsible for the success of the business, may take umbrage with any family member who dares to question them, tainting productive discussion on the immediate issues. In such cases, one solution is to ask a person or group of people whom both parties trust to intercede and guide the discussions for both. Being a family business consultant myself I always start any assignment in such situations, by considering what resources are available to exert positive pressure on the reluctant present leader. Is there a board of directors that can be convened? Are there other respected friends or family members who have credibility with the leader? The way the message is delivered is especially important as credibility is one of the fastest ways to persuade any person. Since power and impairment are intertwined, the engagement is more likely to be productive if the temperature is turned down. It’s important to acknowledge the issue without threatening or blaming the leader. Respectful mediation can help find middle ground where everyone saves face and real change happens. If this does not do the trick, the next step is to get more factual and help the present leader see that if they don’t change or step aside, they could become a liability to the family business and that this liability is having a proven cost to the performance of the family business.
- Delegation: Are there areas where the present family business leader could delegate more? Who are the people who could replace this present business leader some day? Sometimes this can be a process by which the present family business leader gains confidence that things can be done as good if not better than when he/she did them and thus starts to trust and let go more. However, this delegation process needs to be handled well.
- Consider new ventures: What may seem to be signs of impaired judgment could also be a warning that the core business is maturing and may not be competitive in the future. If that’s the case, it’s possible to avoid confronting the current leader while empowering a new generation to plan for the future by initiating new ventures and innovations that take the family enterprise in new directions, with the new generation being the driving force behind these new ventures.
- Find a new role for the leader: Another option is to create a new role for the leader – as mentor or advisor. This allows them to be heard while the rising generation begins to exercise control and make changes. Sometimes this happens when the leader steps down from the CEO role to become the Board chair, for example.
- Step up corporate governance: Anticipating and developing governance before there is a bigger problem. The best solutions are always those that anticipate a problem or a bigger one at that. Families can put a number of mechanisms in place so that they can act if they have serious concerns about the leader’s capabilities – term limits and retirement ages, performance evaluation and leader review, super-majorities for major decisions, setting up advisory boards or including independent directors.
I could keep writing about other options, which could work in certain circumstances and less so in other situations. It’s never easy to wrestle control from an impaired present leader whose identity is tied up with the company they founded or dedicated their life to, but it doesn’t have to come down to a massive battle if the family is prepared to take a few mitigating actions in the short-term.