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March 01, 2009 at 02:00 AM
When a son or daughter steps in to take over the chief executive chair of a family business, timing is everything. The client, the business, and family stakeholders are at potential financial risk after a transition, which places extraordinary demands on the inheritor. Those anointed to the owner/manager role can be similar to infants trying to standup and walk–the sharp-edged realities of the world and their own blind eagerness conspire to topple them.
As part of the overall analysis and planning for clients who own businesses, advanced planning groups examine financial issues, but just as importantly, they help create the outline for an orderly preparation and transition from one generation to the next–and prepare for the unexpected.
Unprepared Yet Successful
Sometimes circumstances bring an unexpected turn in top management–and an underprepared, untested new leader without a transition plan to follow. When her husband committed suicide at age 48, Katherine Graham took over the Washington Post Company, which her father had purchased 30 years earlier at a bankruptcy sale. Her father had never considered her to run the company, and Graham had never expected him to give her an important job at the newspaper. She had only held relatively low positions editing the letters to the editor at the Post and as a labor reporter in San Francisco–a career path that wouldn’t normally lead to the CEO’s office. She did, however, have a deep appreciation of news and the profession of journalism–and she knew the top journalists at the paper.
By all accounts, she learned to be a strategic, shrewd businessperson and important supporter of journalism. Warren E. Buffet observed Graham close-up as a major investor in the company and during his service as a director of the Washington Post Company during half of her 28 years of active management. He saw how she struggled with doubt about her ability and qualifications even after recording remarkable journalistic accomplishments and corporate courage, such as during the newspaper’s coverage of the Pentagon Papers and Watergate. Her business success really impressed him–the Washington Post Company went public in 1971 at $6.50/share. Twenty years later when she stepped down as CEO, shares had grown to $222. Nevertheless, Buffet observed, “this spectacular performance–which far outstripped those of her testosterone-laden peers–always left Kay amazed, almost disbelieving. She was never quite sure where debits and credits belonged and couldn’t shake the feeling that the lack of an MBA degree destined her for business failure.”
Running the Gauntlet
“New leaders of family businesses influence stakeholders, not because they’ve earned that right but because they or their families posses large equity stakes, enjoy the support of the incumbent CEOs, or control organizational resources and rewards,” observes Ivan Lansberg, senior partner at Lansberg, Gersick & Associates, New Haven, Connecticut, in his article “Tests of a Prince,” Harvard Business Review, September 2007. “However, they can’t sustain their leadership thought raw power; stakeholders must also accept that leaders have the right to influence them…the greatest challenge any newly anointed CEO faces is turning stakeholders into followers.”
When a new chief executive inherits the position, he or she must confront the challenges of siblings and cousins who may not work in the business but have a controlling interest in it. Others, such as senior executives, investors, banks, regulators, and unions may question the heir’s qualifications to run the company. Each has an agenda that likely conflicts with those of the others. The opinions that these stakeholders form greatly affect how the new executive manages the transition period and long-term management of the company.
The less time the anointed executives have spent learning the business from the inside or working elsewhere to gain experience, the harder they’ll need to work at establishing themselves as worthy leaders. “The incumbent typically maintains an active presence in the company even as the unfortunate successor tries to take charge. This leads to considerable uncertainty and fuels iterative testing by stakeholders desperate to learn about the new boss,” notes Lansberg. For inheritors such as Graham who arrive without much preparation, the testing is particularly rigorous.
Four Tests of Anointed Leaders
Ivan Lansberg, senior partner at Lansberg, Gersick & Associates, New Haven, Connecticut in his article “Tests of a Prince,” Harvard Business Review, September 2007 identifies four kinds of tests that new anointed leaders in a family business typically confront:
Qualifying tests. Before the child ascends to the executive throne, stakeholders expect achievements in education, career accomplishments outside of the family influence, and other evidence of professional development. In short, the stakeholders seek to measure the anointed candidate against the high criteria they would expect from a non-family job seeker for the position.
