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Best Practices

The Continuity Conundrum: Why Succession Planning Isn't Enough


by Jon Flack

There are three main areas of establishing a continuity plan: leadership transitions, business continuity and ownership transition and finally the CEO succession plan.

When it comes to succession planning for family businesses, the stakes can be high and emotions even higher. After all, succession in family businesses often means deciding which family member will lead the business through the next generation. This friction can be so acute that television shows such as “Succession” have capitalized on it and attracted millions of viewers. 

In that fictional show, which just launched its second season, the self-made patriarch of a global communications empire is suddenly taken ill. Without a clear succession plan in place for the financially unstable company, drama unfolds between his four adult children – and his wife – over who is the heir-apparent.  While the plot of “Succession” is very much made-for-tv, there are some realities underlying the dramatic twists. The show highlights the importance of succession planning, but in reality, the real drama unfolds when family businesses don’t think through continuity planning--not just succession planning.
So, what is the difference between continuity planning and succession planning, and why does one word make such a big difference? The answer is that succession planning is singularly focused on one item: replacing the current leader. Continuity planning, by contrast, accounts for a much wider range of factors that contribute to the long-term health of a business and the family.

There are three main areas of establishing a continuity plan: leadership transitions, business continuity and ownership transition and finally the CEO succession plan.

Leadership Transitions
CEO’s are the figureheads of most companies – they draw the most attention both internally and externally and often set the tone for corporate culture and brand. For family businesses, the figurehead position can also have an implication in family dynamics. Building a roster of other trusted executives around the CEO, along with the support of a strong board of directors, is important for family businesses to separate familial issues and maintain the long-term viability of the larger organization.

For family businesses, this means identifying which other leadership positions--from C-suite executive roles, to the organization’s board of directors, to the external “brand”—will be filled with family members and other professionals over the next generation. Making these decisions early has strong benefits both professionally and personally. Professionally, family members that are identified for leadership positions have time to be properly trained to step into the role when the time comes. Proper training and development of next gen leaders should focus on whether they are ready, willing and able to lead.  Non-family members are also made aware of their potential growth opportunities within the organization, helping ensure that leadership transitions are as smooth as possible. On a personal level, making these decisions early helps ease potential future tensions within the family about roles and responsibilities in the business.

Business Continuity
Because traditional succession planning is often tangled with the image of the current family leader it can take years to plan and distract from larger questions about proper business structure and longevity.  By shifting the conversation to continuity planning, leaders expand the discussion beyond any one individual to encompass the health and long-term well-being of the business and its collective leaders and owners.

Specifically, this means answering questions like “are we investing in the right growth verticals?”, “is our portfolio diverse enough” and “Do we have the right technology and talent inhouse.” By including the larger business in the discussion around what happens when the leader steps down, it can help ease the burden of a singular personnel shift and focus all leadership around a sound business strategy as a future guide.  A proper strategic planning process is a key component in an overall business continuity plan.

Ownership transition
Preparing the next generation of owners is often an overlooked step in a family business’ continuity plan. Families first need to take a step back and think about each role and responsibility the current leader or leaders possess. Often, the current leader serves as chairman, CEO, shareholder and family leader, along with potentially other information roles such as brand ambassador and leader of the family’s philanthropic ventures. As each generation in a family typically grows in size, next gen members can too often overstep their own roles if they try to replicate the behaviors and responsibilities of their current leader. That’s why it’s paramount for family businesses to recognize each specific role within the business and consider the authority and responsibility associated with each role.

A framework for helping families consider each role in a family business is the 4 “R’s”: Role, Requirement, Responsibility, and Remuneration.  Shareholders, directors of the board, a family employee and a family member each have specific definitions within the 4 “R” framework. In order to prepare owners for a successful transition, education around their 4R’s compared to other roles is necessary.

Using Continuity Planning to Prepare for the Next CEO
Finally, once other leadership structures and a business plan are put into place, it’s time to face the most challenging aspect of continuity planning: identifying the next CEO. For many family business leaders, the company they have built and led becomes inherently tied to their identity, which can make the concept of succession planning personal and therefore difficult. This is something the show Succession focuses on, as the patriarch grapples with relinquishing control to his children. It is also very helpful to consider substituting the word “succession” with “continuity” when having discussions with the current leader. Given the strong emotional and identity challenges the current leader is feeling in the thought of stepping away, the word succession often puts the current leader on guard.  Continuity, on the other hand, shifts the planning focus of the current generation to legacy rather than replacement.

The impact of this emotional connection is real, as most family businesses have not planned for CEO succession. According to the recent PwC Private Company Services U.S. Family Business Survey, just 18 percent of family businesses say they have a robust succession plan in place. This is where the other two pillars of continuity planning become particularly valuable. It is easier to have succession discussions when leaders know that they have been, or will be, involved in explicitly shaping the future of the organization in ways that will extend even after they leave the office.

Continuity Planning in Reality vs Hollywood
The drama around family business successions makes for great TV, but in reality, a highly contested succession situation can damage both family relationships and business. By focusing on continuity planning as a more comprehensive look at the future of the organization, family businesses can ensure they are considering the bigger picture as they aim to turn a family business into a multi-generational success story. 
 
Jon Flack is a Leader of PwC’s Family Business Services Practice.