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Succeeding at Succession – It Takes Time

The following article originally appeared in the June newsletter to clients of Kiley Advisors, now a part of FMI Corporation.  Reprinted with permission.

Senior executive succession planning is a current priority for many construction companies.  Baby boomers are reaching ages where they seek to retire or work significantly less.  To custom tailor exits or cutbacks, where there is a legal “change of control,” requires deep, strategic thinking, guided by experienced, neutral, outside advisors.  Tough facts must be faced objectively.  Both the financial and human consequences of succession decisions are high, so thoroughly developing the right transition plan takes regularly scheduled blocks of highly focused executive time, preferably over several years.  The purpose of this article is to create an awareness of the major areas that must be considered.  Future articles will suggest some guidelines.  While CEO succession is the primary discussion, transitions at all levels need plans.

The first step is to get real clarity about what you want to do personally and whether you have realistic options that will allow you to achieve that goal.  Can you transition the leadership and the ownership internally to a younger group?  Can you sell it externally?  Nonbonding, self-performing contractors are the most salable externally, according to industry investment bankers; most other types of contractors require internal sales, except for some in preferred geographic locations or with special client bases.  Under any scenario where the business continues, it will be the people who remain and their current competencies or future potential that will be the critical determinants of value and success.  Hence the need for time to truly gain confidence in the plan.  Hard questions remain, even with very competent people.  Do they really want all that comes with being the CEO or senior officer roles?  Guarantees?  Exposures?  Are they willing to put skin in the game, using their own funds to purchase the shares?  If the transition occurs in a family business, particularly where there is more than one sibling currently employed, in addition to the competency question, there are often difficult questions related to the ownership transfer question.  Experts often advise approaching things from an “equitable but not equal” basis.

The need for time to prepare future leaders, even for construction companies that have made generational transitions in the past, is exacerbated by the increasing force of the VUCA environment (Volatility, Uncertainty, Complexity and Ambiguity).  When things change rapidly, often violently, the anchoring foundation is the company’s core ideology: its core purpose and its core values.  These create a culture that will attract and retain the people who can lead.  The company will adjust and thrive through these inevitable cycles.  This is particularly true if these future leaders have been developed and seasoned by experience, exposures and education – that in addition to increasing their competencies, they have been given clarity into who they are as leaders, their strengths and weaknesses.  Strong value-based cultures and strong value-based leaders are the essential combination for successful transitions.

This article is the first in a series that will discuss all dimensions of succession.  Thinking about preferred timing and people and their potential are the first steps!