Succession Planning Problems

Causes of succession planning crises. Why do some family business owners fail to plan effectively for business succession? David C. Krock, an attorney with Eastman & Smith Ltd. in Toledo, Ohio, cited six reasons in a recent article in the newsletter of the University of Toledo Center for Family Business:

1. Difficulty delegating. Business owners tend to have strong personalities that make it difficult for them to relinquish control or delegate key responsibilities. The business owner may be performing several key functions that should be delegated. The owner is just too busy, and succession planning is relegated to the back burner. An effective succession plan will allow others to slowly assume responsibility for key functions and to become future leaders. Delegating important functions may be threatening to the business owner, making it difficult for him or her to hire and mentor successors.
2. Fear of change. Any change in the owner's leadership role may represent a reduction in the owner's perceived significance to the community, the organization, customers and suppliers. Change is resisted because the owner cannot accept doing anything differently.
3. The 'Superman' problem. Business owners often perceive themselves as invincible and view  discussions regarding succession planning as premature.
4. Concerns about ability to maintain lifestyle. Business owners often reinvest their profits in their business. Therefore, much of their net worth and income is directly tied to the business, making the business owner dependent on the business to maintain lifestyle.
5. Fear of conflict over choice of successor. Owners are reluctant to make difficult decisions regarding the selection of capable future leaders. Selecting key family members -- or an outsider -- may create so much intrafamily conflict that the owner avoids the decision altogether. Delaying these decisions may have the unintended effect of causing one or more family members to leave the business. The family member who leaves the business may actually be the most qualified person to run it.
6. Concerns about treating children fairly. The concept of dividing one's assets equally among children often conflicts with the idea of distributing assets equitably. Dividing an owner's interest equally among children may seem like the right thing to do (and what children may be expecting). However, if such a division does not provide for a structure that will allow the business to prosper, the business may fail, and the company as well as the family's future livelihood may be put at risk. Reluctance of the owner to address the prospective inheritance issues (and possible differences) of children working in the business vs. children outside the business is a significant impediment to succession planning.

(Source: "Family Owned Businesses -- Succession Planning Crisis," by David C. Krock in "Succeeding Generations," the newsletter of the University of Toledo Center for Family Business, Summer 2006.)