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by Rich Folts and Bruce Walton
Succession planning has always been a critical concern for family business owners, but in the past few years we’ve seen a surge in the number of family businesses searching for new leadership. This uptick in succession planning is the result of two converging factors. First, the boomer generation is reaching retirement age. Boomer entrepreneurs who started businesses early in life are thinking about passing the baton. However, the economic recession forced many family-owned businesses to delay succession planning. Now that the economy is showing signs of a rebound, owners are beginning to actively discuss succession strategies.
We’re now seeing the release of this pent-up demand for new leadership, and many businesses are bringing in non-family executives in the absence of a qualified or interested family successor. Family business owners and their advisors feel a sense of urgency and want to act swiftly. But a hurried succession plan is destined to fail. Based on our experience recruiting external executives to family businesses for decades, we recommend following these best practices:

•  Start early. The family must begin to formulate a succession strategy well before the chairman is ready to step down. Ideally, the planning would begin when the chairman is in his/her early 60s in order to ensure a smooth transition before s/he reaches 70 or has a health issue. Waiting until the chairman is any older can cause emotional complications (e.g. the owner’s identity is too enmeshed in their professional role, which ultimately hinders the transition and hurts the value of the enterprise) and practical complications (e.g. the chairman develops health problems that force an unplanned transition).

• Seek Expert Help. Every family business is different, and the particularities of organizational structure and family dynamics can lead to complex business challenges, especially when bringing in an outside hire. At the very least, family businesses should build an advisory board to provide outside, unbiased perspective. The business owners should engage a family business advisor who combines expertise in family systems, psychology and business governance.

• Establish Appropriate Incentives. Hiring a leader from outside of the organization can energize a business, but it requires both the right skills and temperament. To attract the right type of candidate, family business owners must provide a way for the CEO to share in the value they create. Doing so will attract candidates who have both the ability and the desire to grow the business.

To demonstrate the effectiveness of implementing these best practices, we’d like to share two case studies. In both cases, bringing in an outside executive resulted in a thriving business and a happier (and wealthier) family business owner.

Case Study: Regional Distribution Company

Several years ago Rich Folts worked with a family-owned regional distribution business. The chairman wasn’t quite ready to step down, but he wanted to prepare for his impending retirement. The executive team who had helped build the business were also interested in retiring.  With no obvious successor in line, the chairman worked with Rich to find a new CEO who had the vision and experience to both maintain the culture and build the necessary infrastructure to move the company from a regional to a national distribution business.  We hired a seasoned CEO who had prior experience growing two similar regional distribution businesses into national organizations and was looking to continue this pattern by purchasing a regional franchise business.  This opportunity fit perfectly into his plan and removed the financing issues associated with an actual purchase.  We set up a strategic incentive plan: After ten years, the new CEO could accept a substantial buyout, sell the company, or walk away. In the meantime, the family maintained ownership.
In the six years since being recruited to the company, the new CEO has

• Doubled top line revenues
• More than doubled shareholder value
• Expanded the business from a regional to a national distributor

Because the family business started early and created an enticing, effective long-term incentive plan, the transition has been a success for all parties involved.

Case Study: Global Manufacturer of Engineered Industrial Components

Bruce Walton partnered with a $70 million company that produces engineered industrial components for major companies like HP, Toyota, and Bosch. While the chairperson was family and there were other family branches represented on the board, there was no remaining family in the business, and they had suffered losses for a number of years.
The company had an ESOP, and the family expressed mistrust of the previous CEO. We were looking for a transformative CEO to restore profitability and the family’s trust. We brought in an innovative CEO who had been working in Germany for a mid-cap private manufacturing company where he had been well-trained by a very professional German board chair. With children approaching school age, his family was ready to return to the US.
The new CEO was able to return the business to profitability within nine months. In just under five years, the CEO’s leadership has led to a significant increase in the new business pipeline, resulting in 70% more revenue and an expectation of doubling revenue by the seven year mark. With a focus on “doing things right” and investing in human capital, profitability is healthy and the ESOP share value has already doubled.
For more information about effective succession planning for family-owned businesses, contact Rich Folts or Bruce Walton.

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Organization-wide Strategy

In the 1970s and 80s the Chief Nursing Officer role was called the VP of Patient Care Services. At that time, the nursing field was composed almost exclusively of women, and the CNO was rarely included in strategy planning or major hospital decisions. The nursing group was often forced to operate in its own silo, not allowed to participate in larger discussions about hospital strategy.

Fortunately, the playing field is leveling, and CNO’s are now gaining seats at the table with other C-level executives, increasingly playing a role resembling a Chief Operating Officer. Now they must be able to think strategically about larger hospital objectives. Moreover, since more departments – radiology, laboratory, and case management, for example – fall under the CNOs span of control, s/he needs to represent those voices at the table. The CNO must be able to collaborate with other hospital departments, serve as an advocate for the teams s/he oversees, and understand how the nursing department’s performance impacts the hospital.

Talent Management and Development

The newest generation of nurses will be caring for a dramatically different type of patient. Because the Affordable Care Act makes preventative care more accessible, those patients that do need hospital care will be much sicker. The quantity of patients will decrease, but the level of care required will increase. As a result, nurses will need to focus less on productivity and more on quality of care. The CNO must be able to identify and hire highly talented nurses, but must also be able to retain those nurses and dedicate the required resources to invest in their development and continuing education.

Understanding the Economics of Healthcare

Because ACA regulations hold hospitals accountable for the quality of patient care, there are financial implications of nurses’ daily decisions. The Chief Nursing Officer must understand the long-term consequences of the services nurses provide. S/he must be able to relay the financial risks associated with poor care to her counterparts in hospital administration and strategize how to effectively mitigate those risks.

Succession Planning

In addition to building a highly talented team, a CNO must think about developing a pool of qualified candidates to step into the CNO role. Today’s CNOs are largely in their late 50s and 60s, nearing retirement age, so succession planning should be top of mind. Additionally, many young nurses are taking specialty tracks, like informatics and nurse practitioning, so it will become increasingly important to identify nurses that are both focused on high-quality care and interested in entering a leadership position.

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