Succession Planning: Are You Honing Next-Generation Leaders?

5/16/2016 - By Zachary Farrington

An estimated 10,000 baby boomers are now turning 65 years old every day. Many of these boomers are owners of family businesses who plan to retire in the near future and pass on their companies to the next generation.

But is the next generation ready to assume the mantel of business leadership? In many family enterprises, the unfortunate answer is no. While owners may have done a good job of planning transition details like ownership structure, estate tax reduction and business profitability, they sometimes neglect what is often the most important component of a successful transition: developing the next generation of family business leadership.

A Threat to Long-Term Success

In one study of family business generational transitions, weak next-generation leadership was viewed as one of the primary threats to long-term family business success. This makes future leadership development one of the most important tasks for owners who want to successfully transition their companies to the next generation.

Family businesses face some unique challenges when it comes to future leadership development. For example, family roles and birth order sometimes play a bigger role in determining future leadership responsibilities than family members’ actual skills, talents and abilities. The subtle nuances of lifelong family relationships, both good and bad, can also have unintended and damaging effects on leadership development.

So one of the first steps in developing next-generation leaders is identifying the best candidates for future leadership positions. These decisions should be based not on age or seniority, but on which family members are best qualified and most capable of leading the organization.

Making these decisions objectively can be difficult from your perspective as the leader of both your family and your business. Therefore, it might be wise to turn to advisors outside the business — like members of your board, for example — for their input and advice.

Start the Grooming Process

Once you have identified the best candidates for future leadership positions, it’s time to start grooming them for leadership responsibilities. Doing so requires a conscious effort on the part of both you and the future leaders — it’s not something that’s going to just happen by osmosis. You both must make a commitment to the leadership development process.

For you, it’s going to take time, energy and attention. Many business owners spend most or all of their time on bottom-line oriented tasks like driving sales, building infrastructure or crunching financial numbers. Leadership development is different — it requires you to pour yourself into those who will determine the success or failure of your business after you’re gone.

Your future leaders must also commit to learning all they can from you while you’re still around to teach them. Family members who aren’t teachable often end up being ill-prepared for the rigors and challenges of leadership when the time comes for them to take the reins.

Here are four strategies to keep in mind as you formulate your leadership development plan:Start the process early. It’s never really too early to start grooming your company’s future leaders. As soon as you’ve identified them, begin the leadership development and training process. Give future leaders real responsibility, including risk taking. Allow them to make complex decisions with real risks and consequences — and then let them live with the results. Don’t feel like you have to immediately “fix” all their mistakes for them.Provide consistent feedback, both positive and negative. Give praise when it’s deserved and constructive criticism when it’s needed — always with the goal of making them better leaders.Foster a supportive environment with open, two-way communication. Future leaders should feel free to ask any questions they have at any time to any members of the management team without fear of judgment or reprisal.

Begin Planning Now

Whether you are two months, two years or 20 years away from handing over the reins of your business, you should start thinking about developing the next generation of leadership. This is the best way to help ensure the continued success of your company for generations to come.