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Succession Planning
By French Hill

Recently, former ALLTEL chief executive, Joe Ford, saw the reins of ALLTEL turned over to the third generation, his son, Scott. What a moment it must have been. It is a critical moment in the time of any business, particularly a family business - and, most assuredly in a family business enterprise that is publicly traded. And, what an ironic moment it must have been. According to ALLTEL corporate history, the elder Ford, having worked for his father-in-law, ALLTEL founder Hugh Wilbourn, had made it clear to then twelve year old son, Scott, "Ill help you in any way that I can, but we're not going to work together." His logic: "Too much family."

Years later, long after the younger Ford had proven himself an exceptional businessman at Merrill Lynch and Stephens, Joe Ford acted on suggestions from Jack Stephens and others that Scott should join ALLTEL. A proper role and succession plan was crafted and the rest is history.

Succession planning is a fundamental benchmark of a successful company. The complexities, planning and implementation are compounded when one is dealing with the multiple stakeholders in a family business: non-employed family shareholders; non-family shareholders; non-family management; family employees not considered for succession; spouses of family members in all of the groups.

According to a recent survey of family firms by Arthur Anderson and Mass Mutual; "in the next five years alone, 39% of family businesses will experience change at the top." Despite the complexities and frequent family tension, the survey reports that an overwhelming number of these business owners - 81% -- want the business to remain in family hands.

Sadly, the Anderson/Mass Mutual statistics are not on the side of successful generational transitions. Only one-third make it to the second generation; 12% make the cut to the critical third generation; and, a modest 3% make it to the fourth generation and beyond. Such outcomes, make the 350 year tradition and 11 generations of family ownership of Dover, New Hampshire 's Tuttle Farm seem almost impossible. Founded around 1635, the Tuttle Farm has survived wars and countless business cycles. Today, it thrives in the upscale, gourmet foods, exotic plants and retail gift business. The CEO position has traditionally been passed on to the youngest son with the belief that they will survive the longest.

The challenge is to overcome the most frequent hurdles in developing a family succession plan that all stakeholders can accept and embrace. The critical point person is the current chief executive officer aided by the firm's board of directors, or an executive committee of the board. The personality and style of the current chief executive officer is fundamental to the success or failure of the succession plan. When the CEO is also the company founder, special concerns are typically evident. The psychology and skillful approach to exiting in the right way (which I define as giving the successor a real chance at independent success) is the theme of the terrific book called The Hero's Farewell - What Happens When CEOs Retire by Jeffrey Sonnefeld, a business professor at Emery University.

A result of five years of study, The Hero's Farewell postulates four exit styles of CEO's: Monarch, General, Ambassador and Governor. Each style determines what, if any, succession planning can be accomplished. A CEO "Monarch," more likely than not, does not retire, but "wears his crown until the end." There is no separation between themselves and their work. They seek a "heroic mission." They typically are CEO for decades and are independent and have often guided the company through adversity. "Generals" also possess a heroic mission, but it plays second fiddle to their need for a "heroic identity." The "General's" identity is "intertwined" with being "THE" leader and is accompanied by all the powers of the office. They often leave in pain, turn down other offers, and if the opportunity presents itself, will attempt to step back in as CEO! Our exiting "Ambassadors," often stay with their company, but unlike Generals, they do not seek to return to the top or "fight new battles." Instead, they pride themselves on supporting their successor. "Governors" exit from CEOships that are frequently characterized as more "tranquil" times than during the tenure of Monarchs and Generals. Governors tend to be head of firms that are larger, slower growth enterprises. Retirement for a Governor tends to translate into a "career switch" to government service, a start-up company. They tend to break ties with their company; and, by the end of their tenure at the top, they are impatient for the next event.

Recognizing these existing models, the current CEO and board should consider the following steps in crafting a succession proposal. First, plan to go out like an Ambassador or a Governor; second, create a process whereby stakeholders understand the criteria for a successful selection of the new CEO. Bring in older employees and those non-family managers into the process; third, make sure a solid transition plan is in place for communicating to suppliers and key customers; and, fourth, where the situation dictates, consider the use of consultants and advisers to help properly structure a plan. The successful transition also has its roots in the Company's overall philosophy on family employment. A family employment policy is strongly encouraged which outlines some basic tenants, such as: appropriate educational background; proven work experience outside the family; reporting (where possible) to non-family managers during early career development; strict performance guidelines on compensation and advancement. This planning will address the special tensions that Sonnefeld identifies that family firms face: founders and their own search for heroic mission; friction between founders and their kids; tensions between succeeding generations, siblings or cousins; and, between the family CEO and the long-term non-family employees, customers and suppliers.

Former GE CEO, Jack Welch referred to his secret succession plan as "NG," code for "New Guy." He said that "making the pick was not only the most important decision of my career, it was the most difficult and agonizing one I ever had to make. It damn near drove me crazy, causing many sleepless nights." Clearly, that should be the feeling of all CEO's (and Boards) who want to see their firm thrive and survive beyond their leadership.