Current events in the news illustrate the difficulty of effective succession planning. Warren Buffett’s succession plan blew up when his heir apparent, David Sokol, was caught self-dealing in a potential acquisition. The IMF was caught in a compromising position when their leader Dominique Strauss-Kahn was forced to resign. We try to guess the next ruler of North Korea by what kind of hat Kim Jong-il’s son is wearing and where he is sitting, while the sane world waits on pins and needles. Mubarek, Gaddafi, Ali Saleh and virtually every other leader of an Arab nation strive to keep it all in the family over the violent objections of their constituencies. The Crystal Cathedral, home of one of television’s most successful evangelical ministries, experienced a falling out between Dr. Robert Shuller and his son during their transition—yet they still hope to protect our moral balance sheet as they file for financial bankruptcy. Now the failing health of creative genius Steve Jobs necessitates a transition of Apple’s leadership to their COO, leaving many to wonder if Tim Cook is up for the job of growing the company through the next generation.
While owners of smaller organizations may find some consolation in these public struggles with succession management, they should dig deeper for answers to their own challenges. What lessons can be learned for your own firm? Planning for the future is critical. Where will your business go with a different leader at the helm? Succession is daunting, even more so without an obvious leader waiting in the wings.
In each of the well-known cases cited previously, the successful entity produced a cult of personality. A strong personality is a great quality when beginning or rebuilding a company—but inevitably, a leader’s firm grasp of key issues becomes a grip of death for the business. Enterprises that are overly dependent on a single strong leader can rarely survive the end of that person’s tenure unless a proper transition plan is implemented early, communicated loudly and executed effectively. Look at how GE, Chrysler and Microsoft drifted when Jack Welch, Lee Iacocca and Bill Gates left.
A friend of mine once shared the challenge of replacing a charismatic Baptist minister who had presided over his church for 30 years. The recruiter hired to find a successor told the church board, “Your next leader won’t last much more than a year because everybody will be comparing him to the last guy. So assume this hire will be a transitional minister and hope that your church can survive until you bring in somebody who will look better than the founder’s replacement.”
Financial advisors, broker-dealers and custodians have much to learn from observing the fate of other companies after their founders ride into the sunset. Business continuity issues are not solved by finding a buyer for the business, but rather by building a culture of courage, passion, accountability and confidence that allows others to step up when you ultimately step down.
If a liquidity event is your goal, then a well-run enterprise that no longer needs you to grow—let alone survive—will be worth more in the market. Regardless of the goal, do not confuse succession planning with sale planning. If you go directly to market without addressing the fundamental issue of leadership continuity you are only selling a book of business, not a real enterprise. Also take note: In each of the examples cited previously, fate or health or bad choices drove the succession plan. Such uncontrollable events make an orderly transition nearly impossible. Wise leaders must prepare for the unexpected.
Cult of Personality
The New York Times printed Joe Nocera’s account of the time he spent with Jobs after he was kicked out of Apple at the age of 31 and then brought back as its savior (which as it turns out, he was). Nocera wrote, “The businessman I met 25 years ago violated every rule of management. He was not a consensus builder but a dictator who listened mainly to his own intuition. He was a maniacal micromanager. He could be absolutely brutal in meetings. The Steve Jobs I watched that week was arrogant, thoughtful, learned, paranoid and insanely charismatic.”
Hmmm … sounds strangely familiar to those of us in financial services.