Succession & the Transfer of Power

HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Succession & Transfer of Power
What Happens When The Founder Leaves

HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLEDHTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED
Review of Last Few Weeks
 Over the past few weeks, we have set the stage for helping
you to understand how family based businesses operated
 We have discussed the impact of different organizational
structures
 We have discussed the difference between different types of
management structures
 In the last lecture, we set the stage for how family influence
impacts business
 In this week’s lecture, we are going to look at the impact of
succession on a family business and the different roles that
we can expect to emerge

But first…
The Course Project

As you all know, the first submission was
due on the 8th of November...

Many of you missed the submission

If I don’t have your project submission
by midnight Thursday – that’s 12 am
Thursday – you lose half the points for
the submission.

If I don’t have it by midnight Saturday –
12 am Saturday – you lose all the points
for the first submission and I will not
consider your project throughout the
semester

So in essence, you will fail the entire
course project if you miss this
submission on Saturday midnight

Questions?

Succession & the Transfer of Power
This Week’s Lecture

A CEO has a mandate to drive the
success of a business – that is first and
foremost.

They also have the responsibility of
keeping the family company
competitive.

But in family businesses, they have the
problem (or challenge) to fulfill the long-
term mandate of institutionalizing the
enterprise

What does that mean – institutionalizing
the enterprise?

It means building great companies that
will thrive from generation to
generation.

CEO as Governance

The blurred boundaries that we
discussed in lectures 2 and 3 are the
biggest reason for the need to build
institutions to govern the relationships
between family, ownership and
management.

If family rules become business
rules, conflict is avoided, but problem
solving is diminished and costs are
incurred

If the pattern continues, no amount of
succession can ensure the continuation
of the business for the next generation.

Do you understand what I just said?

Business is not about family rules. It’s
about developing systems that work in
good times and bad times.

Sadly, this is the one thing that most
CEOs don’t focus on – the building of
institutions of governance

Family CEOs perceive the business in a
significantly more positive light than do
other family members

They are also more interested in
business/succession planning,
communication, growth strategies,
career opportunities and effectiveness in
boards

But when everything is going well, they
are not interested in building the
institution that the business should
become just in case they are gone
tomorrow

CEOs believe that there is clarity and
understanding among family members
of succession requirements and the
manner that it will be transferred

The Transfer of Power

CEOs preparing to transfer power do
not, single-handedly, have to make
succession happen

They may also not be one of those who
want it to happen

Studies show that CEOs in family-
controlled enterprises are prone to long
tenures and even entrenchment

By not making way for the future
generations, these CEOs tend to
seriously weaken the company’s ability
to continue across generations

But we have to understand that the
transfer of power is not easy in any
setting – whether corporate or family

For many, the drive for power is as much
a life force as the needs to achieve and
to be loved

In a family business, transfer of power is
further complicated by the demands of
family relationships and the sheer
potency of ownership

So in a family business, it’s not just
passing the management to the next
generation, it’s also a matter of passing
on the family leadership and ownership
control

I’ll take you back to the example I gave
you with the Louisville Courier-Journal
and the Binghams

Barry Bingham Jr had been appointed
President of the Louisville Courier-
Journal, but his father Barry Bingham Sr
still retained majority control

He had voted his daughters on the board
and decided to sell the company without
consulting Barry Jr.

In other cases, significant ownership
stakes have been passed on to the next
generation without passing on any real
voting power or control

When this happens – controlling
ownership and top management posts
being kept by the previous generation –
make a mockery of the transfers of
power

Also, since future generations are not
trained or prepared for company
leadership many problems can occur

My reason for telling you all of this…

The transfer of power needs to be
uniquely designed for each family and
business in such a way that family
leadership, ownership control and
company management are part of it

CEO as an Architect of Succession

CEOs who have developed a winning
succession in a business do not fit the
profile of the hero portrayed in
Hollywood movies

Instead, they are modest, substantive
entrepreneurs or serious professionals
with a mission

They care more about doing the right
thing for the company and its continuity
that about promoting their own egos or
agendas

CEOs of family businesses are building
companies to last, so they can’t afford to
be narcissistic, spotlight-hungry
performers

They are stewards of a legacy that has a
life of its own with a value beyond that
of the individual CEO

They typically take the role of an
architect as they transfer their vision
into reality

They must enlist the right people and
then execute the right strategies to
ensure both sustainability and continuity

Samuel Curtis Johnson III, the 4th
generation CEO of SC Johnson, came
into the realization that he had to be the
architect of the transition

Herbert Fisk Johnson, the 2nd generation
President of SC Johnson, died suddenly
in 1928 without leaving a will

A battle started between siblings
ultimately gave 60-40 majority control to
Herbert Fisk Johnson Jr, Samuel Curtis’s
father

Samuel III still remembers the 10 long
years that it took his father to settle his
grandfather’s estate

As a result, his father vowed not to do
that to his son, and Samuel Curtis vowed
not to do that to his sons and daughters
either

Once the right people were in place, the
strategies for the various divisions were
working and the institutions for
governing the relationship between
business and family were in place

Samuel Curtis Johnson III decided it was
time to retire

CEO Exit Styles and the Transfer of
Power

There are 6 styles that are most
common when a CEO exits a company

They are:
The Monarch, The General, The
Ambassador, The Governor, The Inventor
and The Transitional Czar

The Monarch

Kings and queens rule for life – they
have no retirement provision in the law

They have no expectation of early
departure to compensate them for years
and years of presiding over wars, social
unrest and leading visible and
demanding socio-political lives

Since succession can not take place
while the Monarch is alive, palace
revolts and death by poisoning are
common

Monarch operate with the assumption
that they will die with their crowns on

Many business owners are guided by the
same principle. Years after the
retirement age of 65, they show up daily
at work to read the mail, make calls
and…

To reverse decisions made over the past
24 hours they disagree with

Effectively, they rule the company during
a 3 – 4 hour workday

Monarchs hire and fire a whole series of
aspiring general managers, presidents
and Chief Operating Officers

The better they are, the faster they go
because monarchs don’t imagine anyone
could ever replace them.

They definitely don’t talk about
succession, nor do they set a date for
departure or a deadline for change in
responsibility

They genuinely seem to believe that
illness and death are things that happen
only to others

Succession & the Transfer of Power

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