Canada abounds with great entrepreneurs for
whom succession is the most significant future threat their
companies will have to overcome: Magna's Frank Stronach,
Roger's Ted Rogers, Bombardier's Laurent Beaudoin, Four
Season's Isadore Sharp. When planned and executed well, as in
the case of Microsoft and Dell in the U.S, or Biovail, Cognos,
and Tundra in Canada, succession builds on the success of the
founder and increases the company's ability to create
shareholder value. When not, it can have explosive effects as
in the case of firms such as McCain's and CARA.
The transition from a founder to a
professional manager is risky business. In the world of
executive search, we are often asked to help companies find
the right person to succeed the founder. During such projects
many successful professional managers will simply refuse to
participate, preferring their current roles to the uncertain
roller coaster of stepping into a founder's shoes. Yet others
will proceed with the dangerously cavalier attitude that these
situations do not differ appreciably from others they have
successfully addressed in the past. At
the centre of any transition is the founder and it is vital to
understand the founder's mindset before even attempting to
facilitate a succession. This article covers some of the key
issues which require consideration in order to increase the
likelihood that the hire will be a success in the long run and
that a successful founder transition can be
achieved.
These include:
How much of the
founder's self image is related to being the head of the
business?
This is an intangible but absolutely
critical. People who have made significant sacrifices to build
their businesses are less likely to be emotionally equipped to
make the transition to retirement or a non-key role. Outside
interests in family, hobbies, travel or even other businesses
are a key to assessing whether the emotional step is possible.
While it may be difficult to determine, any successor needs to
understand the founder both at work and in their personal
life.
A founder I know had talked about retiring
for two years and the succession plans were in place. The
partners who were going to take on the management of the
business were ready to go and all was in order. The founder, a
noted workaholic with few outside interests, including family,
took extended holidays to acclimatize himself to being away
from the day to day operations. However, upon returning, he
appeared unsettled and returned to a very heavy workload. Two
months before his planned retirement he announced to an
assembled group of partners and successors that he was
not going to step down. The resulting
brouhaha was expensive both in terms of shareholder value and
personal integrity for all concerned. Many of the supposed
successors left the company and took valuable clients with
them. The remaining business encountered tough times as
clients were ignored during the turmoil, employees became
demoralized, and several new employees were laid off. The
final result was a smaller, less valuable firm that was put on
the auction block at a much-reduced price. The ultimate irony
is that the founder had created a human resources consulting
firm that earned significant fees counselling companies on
succession planning and management of the process.
Another founder I had the pleasure of working
with was quite the opposite. He had a strong family life,
current and engaging hobbies and other small businesses that
needed the attention of their owner. His successor was very
glad to find a person who was looking to help him learn the
ropes and succeed in his role. After a few months on the job
the founder moved very successfully to a clearly defined
chairman role, cleaned out his office and moved to a different
location. After a couple of years both the founder and his
successor are extremely happy with the situation and they have
enjoyed some growth due to strong markets and new ideas.
The nature of a founder is to be incredibly
passionate about building his or her business and there has to
be something or someplace for that person to go to, whether it
is neglected hobbies, travel, charity, volunteer work, or
board participation. If those plans are tentative or do not
exist, it might be extremely difficult for the founder to stay
away from the business. Any successor has to understand this
about the founder and it will only be through careful due
diligence that an assessment can be made. Meeting with other
executives, and dining with spouses can be critical steps in
that due diligence.
Who is driving
the process to replace the founder and what is the
ownership structure?
Many boards have
found their chosen successor sabotaged by a founder that did
not want to move out of the top role. Some founders are quite
happy to step aside and make room for their successors but
others are not. Many founders are forced from their critical
roles by a board that is frustrated with some aspect of growth
or management style. Stepping into a feud between a founder
and other significant shareholders is a minefield and even if
a professional manager proves successful it will be a
difficult and painful process. If there are core business
issues that need to be addressed then the professional manager
had better ensure that he or she has the right skills and the
mandate to make the changes.
In the end it all comes down to the ownership
structure and who has the most votes. If the board is driving
the process against the wishes of the founder then any
successor had best ensure that they have a majority of the
votes at the board. With the increased use of preferred
shares in recent years this gets to be a sticky situation and
can lead to deadlock. Board loyalties can be mixed and
fragile. This is further complicated by the fact that, in some
cases, super-majorities are required for some critical
decisions such as the hiring of a new CEO or the restructuring
of a business.
Successors need to do the appropriate due
diligence in terms of the share structure and ownership
positions and the various rights that shareholders retain.
Once the facts are known, the successor needs to examine the
process that led up to the decision to replace the founder and
get a sense of the political landscape. Only when those
elements are properly assessed and factored in will the
successor be able to assess the overall volatility and risk
inherent in the situation.
What are the
founder's
children doing?
Like it or not we all have a strong
desire to ensure that our children are secure. Individuals who
build businesses often have strong and unrealistic
expectations to involve their offspring in the family
business. Any decision on founder succession will be coloured
by that individual's desire to ensure that their gene pool
enjoys the benefits of their labour. If all of the children
have well-established careers in other industries then there
is a good chance that a successful transition to external
management is possible. If, on the other hand, the children
are working in the business and moving steadily through the
ranks, any president or CEO from the outside will likely have
challenges.
In 2002 the newly appointed Chairman of
Rogers Cable, John Tory, was widely believed to be the
successor for Ted Rogers Sr. at the telecommunications giant.
But by 2003, John Tory was moving out of the
organization and into politics. If he had aspirations of being
the CEO of the whole Rogers organization they were certainly
not going to come to fruition. Within a few months of his
transition another senior executive, Alek Krstajic, was making
tracks for the door and commenting that "Ted has put together
his team, unfortunately I didn't have the prerequisite for a
job there, which is the last name of Rogers." Even if Ted
Rogers Sr. was planning to make the transition to professional
management, it is very evident that Ted Rogers Jr. will play a
key role in that team.
Of note, the current President of Rogers,
Nadir Mohammed, has a more philosophical view of the CEO role.
He has been quoted as saying that if the time comes that he
feels he is not being fully utilized then he hopefully will
have earned the right to pursue the many opportunities
available in the industry. Ted Rogers Sr. has delayed his
retirement twice already and his children are gaining
experience every year, so Nadir's aspirations are rightly kept
in check.
What was the
founder's magic?
Founder's shoes can often be incredibly
difficult to fill. They are often people that see opportunity
where others do not. These are the scientists and engineers
that can see a business problem and understand how to create
technology and innovation that can be harnessed to solve the
problem. They couple that with the drive and energy to take
the risk, create the solutions and get them to market.
There is no amount of schooling or training to re-create that
ability. Any successor had better have a careful look
at what the founder does and how he or she does it. If the
founder has been the visionary for the product development and
this has sustained the company, the successor had better be
equally good or know someone that can fill the gap. If the
founder maintained all the key external relationships then the
successor had better determine quickly if he or she can
sustain and grow those relationships.
Any founder will set the tone for the
business that can create sustainable value. The extent to
which the magic has been woven into the fabric of the business
and maintained by the staff will often determine whether a
successor can succeed without being a replica of the founder.
The irony is that to be completely successful in creating a
longstanding business there comes a time when the founder has
to be completely redundant. The challenge of making oneself
redundant after possibly decades of being the key executive is
huge. Successors have to look carefully at how closely the
founder influences the day to day business and how much of the
business is run in a systematic fashion by other key staff. If
all the decisions and key revelations are still taking place
in the founder's head, then the magic has not been transferred
to the business and the successor will have a tough time.
There are some options in this circumstance
and some highly successful founders who built the company on
incredible product development have gone back to the lab or a
research role, while a successor has run the overall business.
If the founder's magic has not been institutionalized then the
successor had better figure out a way to replicate or somehow
retain it for the company.
Is there a
clear
timetable for the
transition?
Many executives have been lured to second in
command or COO roles with promises of a succession and a
founder that is going to move to a less active role. Often
times those promises are made without a firm plan. Any
resistance to defining a new role and creating a plan for a
transition should be viewed with utmost scepticism. Keeping
things vague will pave the way for the founder to re-enter the
mandate created for a CEO or worse, never relinquish any true
authority. Another key element of this is
whether the founder intends to move his or her office. If the
person is determined to maintain a physical presence,
particularly if there is no management responsibility, then
there is a very strong probability that succession will be a
failure.
A colleague of mine recently recruited an
individual that had been in a COO role for two years following
a series of promises by the founder to create a transition to
the CEO role. There were promises of equity and increased
authority that kept getting delayed or deferred. After two
years of vague promises of "someday" the executive was very
open to our call regarding a CEO search we were conducting.
An executive I interviewed a couple of months
ago had been the CEO of a small manufacturing company in
southwestern Ontario, a role in which he succeeded a founder.
The entrepreneur/founder had been diagnosed with a severe
illness and wanted to undertake some challenging medical
treatments and spend time with family. The day before
he moved into his office the founder moved out, taking all her
furniture and effects with her. She only came back to the
plant on occasion and preferred to have lunch with her
successor off-site. This gave an incredibly clear signal to
all involved that the successor was now the key executive and
was going to run the company. What the successor was unaware
of though was that the founder transferred her majority
ownership stake to her son, who happened to work in the sales
and marketing function of the company. Within a year the son
was running the business and the chosen successor was back
looking for a new role. So while the successor had ensured
that he had a clear signal to run the business he neglected to
fully understand both the family dynamic and ownership
structure. His due diligence was not as complete as it needed
to be. While the transition from a
founder to a professional manager is extremely challenging and
fraught with risk, there are times when the transition can
create an incredible opportunity. As with any new CEO role
considerable due diligence is required on behalf of the
candidate to ensure that the company has a good management
team, is reasonably well managed, and sustainable. In the
situation where the candidate is succeeding a founder there is
an extra level of due diligence required that will sometimes
take the successor into some very personal issues. But
with the appropriate due diligence, successors should be able
to understand whether the situation is likely to be a great
opportunity or a recipe for frustration. According to the
Canadian Federation of Independent Business the Canadian
economy has a large number of founder-led companies with aging
leaders. If a candidate to succeed a founder can distinguish
between a recipe for disaster and a chance of a lifetime, then
there is a wealth of opportunity in the employment
market.
About The Author
Paul Hudson is Vice-President in StoneWood's
Toronto office. Paul has eight years of executive search
experience including six years with a major multinational
firm. He specializes in serving technology clients and has
worked primarily on assignments in the software, hardware and
professional services industries. His clients have included
early-stage companies as well large, established firms.
Paul earned a B.A. in psychology from the
University of Manitoba, a B.Sc. in mathematics and physics
from the University of Guelph, and an M.B.A. degree from Simon
Fraser University. |