Nov 042008

Dr. Earl R. Smith II

A number of my coaching and advisory engagements have been with companies that I call ‘life-style’. For me, these are companies limited by either the management style or aspirations of the founder or current CEO. There is nothing wrong with life-style companies – indeed, it is often the perfect solution for some CEOs. They are making more money than they ever though possible, things are stable and manageable and the organization fits well within the CEO’s ability to manage it. The pressure often comes when the founder/CEO is reaching the age where retirement becomes a possibility or when the senior team of the company has developed a strong inclination to push the company to the next level.

Some years ago, I worked with such a company. The founder had done a tremendous job in building it up and the company had developed a strong reputation for quality work. However, the senior team was chomping at the bit and eager to push the company into new markets and drive the run rate higher. The founder had announced his intention to retire. In situations like this one, succession is a strategy for growth.

Two Kinds of CEOs

In my experience as a six-time CEO and my work with many others, I have come to realize that a leader’s ability to reinvent themselves is a key factor in either enabling or limiting growth. As a company grows the business of business gradually become as important – then more important – than the business of the business. Many CEOs are either not interested in making the leap or incapable of doing so. The first step in the process occurs when the CEO discovers their true interests and realizes that they need either to make the leap or hand the ball off to someone who will.

In my work with such companies, I have found that the successor is usually already a member of the senior team. I consider the search for a ‘hired gun’ to be a far less promising approach. High quality talent is drawn to such companies – and to the promise that they will be allowed to grow it aggressively. Most of these candidates have aspirations beyond that of the founder. Many have management skills that were not important during the companies early years. Much of this occurs because the founder has been pushing a strategy predicated on growth. Even in the face of the founder’s disinclination to permit such growth, good, young talent joins the team in the hope that such a disinclination can be overcome.

Succession – the Way Forward

Once the CEO has accepted that his own agenda may be the chief limiting factor, we can begin developing a strategic plan that satisfies his needs and opens the door to growth. The work begins with the establishment of a succession committee of the board of directors. The committee’s formation is a formal recognition that succession is an issue on the table and that the founder is committed to the process.

The second step is to have the senior team – less the founder – develop a new strategic plan for the company. They focus on how they would unlock the potential – how they would take the company to the next level. This as a time of high-anxiety for the founder but it is necessary. The team needs to get a feel for the complexity and responsibilities that accompany such an effort.

The transition can be extremely difficult. If it fails, the company can go down as fast as it went up. If the transition succeeds, foundations are laid that will allow the company to grow. The experience can be difficult for a founder who has been at the helm since the company’s inception.

The team’s focus on the strategic plan serves two purposes. First, it shows how well the team can work without the founder to plan for the company’s future. Leaders will emerge, strategies will be tested – most of which will be discarded – resourcing needs will be quantified. Second, the teamwork and the resulting plan will give the founder a basis for comfort after retirement. The plan will also establish both the current and future value of the company.

When succession becomes the focus of the work, it is implicit that the founder is retiring. As that happens, succession will come to be seen as an important step – preparing the company for further growth.

Managing the Process – Conflict With the Founder

The process I have been outlining is one fraught with difficulties and often highly emotionally charged. The board finds itself in a difficult position. Usually the directors have been hand picked by the founder. Now they are being asked to select his successor. Personal loyalties come under pressure. The board often identifies succession candidates before the founder does. Sometimes they conflict with the founder’s preferences. This can lead to highly charged confrontations that detract from the company’s day-to-day business. In these situations, I have engaged as a facilitator. My preferred client is the board but I have found myself in the middle of all sorts of wild storms that are tangential to the board’s charge. Managing these conflicts is critical to success. My role as an outsider has allowed me to work successfully to mitigate the damage and find productive resolutions.

Providing a Road-map – Setting the Pace

One of my major contributions to such an engagement is to help develop and then enforce a road map for the process. Discussions – let alone confrontations – can lead the effort seriously astray. Highly professional people, under conditions of stress and conflict, can loose their bearings. Communication channels dry up, relationships get frosty and the process can slow down or stop completely. If the effort is going to be successful, these roadblocks need to be removed.

I have successfully used a series of retreats to manage this process and keep it on track. The truth is that all parties have a common goal and a common allegiance. The company must continue and grow. Often hundreds of people have staked their financial and professional future on that possibility. Maintaining good will is a high priority. Without it, the entire project may do far more harm than good. I have seen companies explode and disintegrate under the pressure and that is not an outcome to be desired.

Another contribution that I make is to remind all parties that the process takes time. Expectations of instant gratification are dangerous here. Transition involves real change – and change takes time to manage and sink in.

A Final Note for Founders

If you have built a company that you are proud of and want to see grow beyond your capabilities, it might help to think of it as your child. As a father or mother, you helped that child through the formative years. You protected it from dangers and spent long hours tending to its needs. However, children grow up and need to find their own way in the world. Perhaps it is time for yours to do that. If you are in a situation somewhat like the one I described above, it may be time to consider starting the process of letting go. Send me an e-mail and we will schedule a time to talk. I have been through it with a number of founders and can help.

© Dr. Earl R. Smith II

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