Leadership transition

In approaching twenty years of running business leader peer groups through MD2MD, one of the most emotionally charged topics I’ve seen business leaders have to deal with is leadership succession/transition – with or without change of ownership. Too often I observe when an owner tries to transition to a trusted successor, sometimes even a family member, often a friend. The end result is a painful fracturing of a long standing relationship.

That being so, I recently facilitated a conversation to explore this challenge with an existing business leader. They are becoming Chairman and from another business. An incoming business leader, being promoted to Managing Director. From this, I have collated some tips that might help.

Clearly, an article like this can’t address the challenge for you.  It’s your mindsets, your attitudes and your behaviours that will do that.  I simply hope that one or two of the tips and thoughts below can act as a checklist to help you to identify opportunities to help your transition succeed.

Talk to others. It is a common challenge. None of us are immortal.  We will all need to hand over one day.  There are others who have done it so with caution to recognise no two situations are the same, learn from their experience. (As a quick side pitch, why not join MD2MD? That’s what membership is all about. As the name implies, it’s MD to MD conversations to develop their thinking on how to deal with real challenges such as this.)

Plan well ahead. You need to start talking and planning three years ahead as a minimum. Develop and agree a roadmap, planned timeline and choose carefully the timing of each stage of the communication and the transition. Timing is critical.

Communicate well and early.  Announce the change six to twelve months before it becomes official so people can deal with it in the abstract first. Also so that those that might feel bypassed/they’ve lost out can be handled positively, but clearly by the outgoing boss that they are used to leading them.

Whatever you do, don’t spring it on everyone. Introduce the idea gradually.  Make it a natural progression for the existing leader to step back and for the successor to take control. Indeed, one approach is to try to effect the transition in practice before formalising. If the existing leader is seen to let the successor make all the decisions and that is working, the formal job title and role change becomes simply that – a formality.

Announce internally first. It sounds obvious but staff do not like finding out about important business changes from the press or customers. Although stating the obvious a little, the key message has to be a positive one demonstrating the benefits to them of the change. Put simply, the best way to present benefits, especially if you have carefully engineered a long term step by step transition, is that the succession is to sustain and secure the future of the business. In most cases your team will find a message of continuity less concerning than a message of change.

Think about what happens when something goes wrong.  How will that be handled – because it will happen.  The successor will NOT make all the same decisions that their predecessor would have made. It is inevitable they will do some things differently. It is of the nature of business that not all of our decisions work out as we would wish them. So, some of those different decisions WILL be mistakes that the predecessor would not have made.  Don’t forget that there will also be different decisions that work well. The problem is that those tend not to get so much attention. Overall, ensure the perspective is balanced and discuss up front how you will deal with the situation if something goes wrong. Including how the existing leader would have done it differently. Maybe there are situations so serious that it is appropriate for the existing owner to step back in. However, it is in everyone’s interests to avoid that except in very, very exceptional circumstances.

“They won’t always do it the way you would have done it but that doesn’t make it wrong and may actually be a good thing – change, for the right reasons, is nearly always a positive in my eyes.”

Separate the ownership change from the role change. Whilst ownership and leadership are often linked and there may be personal and financial reasons why they have to be, our conclusion was that the smoothest and safest transition was to separate the ownership change from the leadership change.

This differs from the normal more obvious approach. There is often a gap between the value of the business anticipated by the existing owner and what the successor can afford. That can be addressed. Accountants often suggest the vendor lends to their successor the money to buy the business. That is a good solution… as long as the business meets the agreed growth ambitions.

The problem is that it doesn’t actually relieve the editing owner of the risk. When the transition creates disruption and the business/new owner can’t meet the loan repayments, the former owner can end up having to step back in with legal complexities and operational/commercial pain all round. So, consider carefully whether the linkage of the two (which is at face value simpler and appropriate) creates a risk to the business of a sudden change of direction.

Be clear about the different roles.  Succession can and does work smoothly when all parties know what they are responsible for and authorised to do. So, define roles/authorities clearly and document them in writing. Think carefully about who is accountable for what.

The Chairman as consultant. One perspective that emerged from our discussions was that the role of the Chairman, the existing owner, was to focus on the board, the strategy and market direction, and business resilience. They described their role as ‘like a consultant but better.’ Their job was to research the situation, consider the options and make recommendations to the CEO/board but not to decide or implement themselves. That was for the board and the successor CEO

To finish with what I suspect is the most important comment:

“TRUST will be absolutely key in making any change like this work – when you handover you do need to let go and completely trust the new person taking over to make the good decisions and do the right things.”

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I found the online meetings very useful. Good advice and pooling of knowledge as to how members were coping and initiatives taken to protect and save their businesses

Andrew | Senior General Manager | Village Hotels

Managing Director - Bob Bradley

Bob is a specialist in running high value added service businesses, having run five such businesses as General Manager, Managing Director or Chief Executive. His last employed role was as Chief Executive of a £16M, 200 person family owned business having previously been Chief Executive of an AIM listed company for which he raised £5M funding and which he grew from £4M to £12M in three years through two acquisitions and organic growth, and a corporate PLC subsidiary where he was Managing Director responsible for delivering £10M profit on £45M turnover through 450 staff.

Bob is now following a portfolio career providing entrepreneurial business leaders with mentoring and coaching around business leadership, business growth, merger integration and exit planning.

Core to his portfolio is MD2MD. Having experienced for himself the value of having a strong sounding board of fellow Managing Directors he founded MD2MD in 2004 to provide groups of business leaders with a confidential environment within which they can support and challenge each other to raise their game as leaders and by doing so improve the success of their organisation.

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