A 2011 survey of family businesses conducted by Family Business Magazine revealed that over 35% of business leaders will retire in the next five years and nearly 60% will retire in the next ten years. With the runway for business transition growing shorter and shorter, it’s troubling to note that only 15% of respondents had any formal education program for next-generation members interested in assuming a leadership role.
It appears likely that this contradiction may be the doing of the leaders themselves. Even if, for example, their failure to pave the way for a successor means that the business, the employees, and the family all end in personal chaos and possibly financial ruin. The situation is certainly not the result of anything done intentionally by the business leader, but rather an indication that the leader has not adequately prepared for the transition.
There are three basic needs that have to be addressed and filled before the leader can let go:
- Control and influence. This is particularly apparent when the current leader has been the original entrepreneur who started the business and whose whole life and passion has been devoted to the business. The current leader must devote time, possibly with the help of an outside advisor, to identify other opportunities for satisfying their need to be influential. Not for profit fundraising, running for a local government office, or assuming a leadership position in a charitable organization are examples where influence can be exercised.
- Financial security. It is common for individuals facing retirement to worry about whether they have accumulated enough wealth to support their desired standard of living. Nothing is scarier than thinking that you may outlive your financial resources. A professional financial planner can assist by analyzing your financial resources, recommending an appropriate asset allocation, projecting post-retirement living expenses and estimating the retirement income you can expect based upon your assets, risk tolerance and mortality. The resulting retirement plan can reduce uncertainty and pave the way for the leader to more comfortably focus on business succession.
- Fulfillment. This, for some leaders, is the most difficult “need” to replace. Although the current leader’s future fulfillment is often overlooked during the succession planning process, in some cases it can be the primary reason, consciously or subconsciously, preventing them from addressing the succession issue at all. Many business owners will tell you that their business has been their hobby and they’ve never felt the need to develop other avenues for personal fulfillment. It is important that they spend time whatever time it takes, well in advance of the retirement date, to explore and reflect about what comes after retirement. It is important that they have something to retire to as opposed to something to retire from. Whatever the role or activity, it should meet at least one of the following criteria:
- It uses the skills and knowledge the leader has accumulated over a long and successful business career – e.g., starting a small business or mentoring young CEO/owners.
- It is real and not just “window dressing.” A token role will only deepen the sense of loss in power, influence and personal identity – e.g., a continued role with the company as Chairman if the board is properly constituted and has a strategic as well as operational agenda.
- It allows the retiree to maintain some of his/her business networks and key relationships.
If the discussion addresses these three basic needs early on, it is less likely that the current leader will resist succession planning.