Family Business: Succession and Power Transfer

Succession and Transfer of Power

• Family business CEOs are responsible for maintaining competitiveness and profitability
• They also need to institutionalize the enterprise for future generations

Transferring Power

• Transferring power requires more than just handing over management responsibilities
• It also involves passing on family leadership and ownership control
• Failed successions often result from difficulties in transferring management, leadership, and ownership within a reasonable time frame
• Ownership can be transferred to minimize estate taxes, but without real voting power or control
• This makes the presumed transfer of power a formality
• Management and ownership transfers are crucial for new CEOs, especially in cases of unexpected CEO departure
• Effective transfer plans must integrate family leadership, ownership control, and company management

The CEO as Architect of Succession and Continuity

• Successful CEOs in family businesses are modest and focused on the company's continuity rather than personal ego
• These CEOs ensure the right people are in place within the top management and shareholder group
• Samuel Curtis Johnson III of SC Johnson realized he had to architect the transition
• Herbert Fisk Johnson's death in 1928 led to family battles, which prompted Samuel's vow to avoid a similar situation

Continuity-Construction Project Team

• Samuel assembled a team for the $4.5 billion enterprise, including family members and nonfamily managers
• The team planned a family and company structure over 10 years with key professionals
• Continuity planning included meetings, soul-searching, developmental assignments, interim presidents, and legacy trips
• The plan included wills, shareholder agreements, divisional organization, and an ownership board加州橙县富豪国际的凯西在1988年创立
• The family coupled structural business elements with their family culture

CEO Exit Styles and the Transfer of Power

• Based on Sonnenfeld and Spence's research, there are six common CEO exit types
• Monarch
• General
• Ambassador
• Governor
• Inventor
• Transition Czar
• Samuel Curtis Johnson III retired at 72 after establishing proper governance and strategy

The Monarch

• Monarchs rule for life and do not expect early departure, assuming they will die with their "crowns" on
• They often show up at work daily, reversing decisions made by others
• They hire and fire many aspiring managers, as they do not believe anyone can replace them
• Monarchs do not discuss succession and believe illness and death happen to others
• Succession planning never occurs, and information is closely controlled
• Chaos often follows the monarch's death, leading to greed and agendas that can destroy the company

The General

• Generals retire with self-discipline but plot a return, hoping the successor will fail
• They wait for a call to "rescue the unit," returning to take control
• They may undermine the next generation's managers and continue to rule
• New responsibilities given by the general are only part-time

The Governor

• Governors set and publicly announce a departure date, committing to transferring power in a set time frame
• They enlist key personnel to plan for the transition
• Antonio L. Ferré of El Nuevo Día is cited as an example

The Inventor

• Inventors pursue their next dream after building successful systems
• Jack Bares, CEO of Milbar Corporation, started an engineering company to develop hand tools after succession
• Frank Mars transferred power to his sons and created a chocolate company named Ethel M

The Transition Czar

• Transition Czars lead the multiyear transition of succession, adding value to complex family companies
• Samuel Curtis Johnson III served as a transition czar to ensure successful succession
• They are aware of the difficulties of changing what they created and need outside advice

The CEO and CEO Spouse: Co-architects of family-business continuity

• The CEO and their spouse should build institutions, act as trust catalysts, prioritize next-generation development, and help build bridges with stakeholders

Importance of Promoting Trust

• CEO spouses play a key role in family-controlled corporations
• Research has largely ignored the CEO spouse, but they play a central role in generational transition
• CEO spouses act as stewards of legacy, facilitators of communication, and touchstones of emotional intelligence

Unique Roles of the CEO Spouse

• The CEO spouse assumes a key role in improving relationships between the family and managers and furthering governance of the ownership system
• Spouses fulfill roles depending on their relationship with the CEO, knowledge of the business, and vision
• They act as stewards of family legacy, maintain family unity, and instill responsibility within family members

Role Types of the CEO Spouse

• Several roles emerge when looking at spouses
• Business Partner
• Chief Trust Officer
• Senior Advisor/Keeper of Family Values
• Free Agent
• Jealous Spouse
• Interim CEO

The Chief Trust Officer

• Chief trust officers provide the glue to unite the family through challenges
• They manage the balance between family and business by advocating for family-first agendas
• They have interpersonal skills for family-business continuity and facilitate better decisions

The Senior Advisor/Keeper of Family Values

• The senior advisor helps children grow up with a sense of the business and instills its values
• They promote family values that advocate family-business continuity
• Also, they ensure the family legacy adapts to the present and future

The Free Agent

• The free agent develops an identity apart from the CEO and business
• This is out of the belief that there is a need to maintain a separate sense of self
• This ensures harmony for the family business

The Jealous Spouse

• Jealous spouses compete with the business for the CEO's time and is very active
• On the other hand, jealous spouses may provide the motivation for greater delegation and professionalization of the business

The Interim CEO Spouse

• Female CEO spouses are often called on to provide interim leadership because of their longer life expectancy
• This response is adaptive to keeping the family business under control across generations

Implications of CEO Exit Styles and CEO Spouse Roles

• Monarchs and generals are enemies of succession that stonewall in building business sustainability
• Little hope is maintained, when so many business questions remain unanswered
• While ambassadors, governors, inventors, and transition czars all allow for a generational transition to be planned, assessed, and executed
• The CEO spouse can engineer outcome-changing feats
• CEO spouses feel a special calling and self-awareness in their trust-building role