Family Business Succession – a personal process

Background
Succession planning in family businesses is always individual. It is a vital issue that you are generally only faced with once in your life. A delicate and complex situation!

Consulting an experienced advisor can be invaluable. A customised approach and neutral support during the process can considerably increase the likelihood of success.

This unconventional case study shows that surprising obstacles can occur in such succession processes.

Process
The sole owner and Chairman of the Board of Directors of a major manufacturing company requests a confidential meeting with ARCOM management consultants. The energetic 71-year-old gentleman is a qualified mechanical engineer (ETH, Zurich) and is very production-orientated. He explains in detail that he is undecided regarding handing over the company shares to his son, who has already been CEO for four years. He expects a clear statement from the consultant.

In order to get a better understanding of the possible options for a succession plan, the consultant suggests meeting with the son. The father agrees to this as well as to a daily rate. Although the son reacts with interest to the management consultant, even welcoming a company site visit, he wishes to talk to his father beforehand.

It takes six weeks from the first meeting with the father until a meeting with the son takes place at the company's headquarters. The consultant is greeted by a dynamic, young gentleman in a friendly and curious manner. The consultant learns that the 40 year-old father of two sons has a first-class education in business administration. The son describes how difficult his role as CEO is due to the rivalry between his father and himself. He started at the company twelve years previously in sales, at which time things were going badly. To address the constant quality problems in production, he replaced the production manager against strong resistance from his father. Fortunately, his mother gave him support. The company is now doing very well. However, as his father is very frugal, he has to fight for every investment and market expansion.

During an extensive tour of the company, the consultant encounters a well-organised, orderly company with motivated employees. The son has introduced many innovations. At the subsequent lunch meeting, the son informs the consultant that he had recently given his father an ultimatum: either he gets the majority of shares, or he leaves the company.

The consultant composes a detailed memorandum for the father, with a copy to the son. In it, he provides a tailor-made programme of action with three phases:
1. analysis (in-depth familiarisation and assessment of the development potential)
2. development of solution variants with a proposal for the ownership structure
3. support during the realisation phase as required
The memorandum also lists the corresponding fees.

Following this there was no response for some time. When the consultant contacted the father, he said he needed more time to study this in more detail.

After another long period without a response, the consultant sends an invoice for the work done. Two weeks later, the consultant receives a letter complaining about the high bill, which states he only wants to pay half. The consultant informs the son. The latter reports that the father had been very enthusiastic about the many suggestions he had received. For the first time, he is giving serious thought to the transfer of shares. He now wants to be patient again and follow his father's actions. The invoice is paid immediately by the son.

Outcome & Conclusions
After hearing nothing for six months, the consultant meets the son at a management seminar. He reports that although his father had declined the advice provided, the contract for the transfer of shares was now finally being discussed. The father found this step very difficult. However, the son is confident that the succession plan can still be finalised.

The full transfer of shares only took place two years later. The son will always remain grateful to the consultant for the decisive impulse he gave to the father. The contact remains. The company grows enormously, with production sites worldwide. Many years later, when one of the two grandsons joins the company, the consultant and the son meet for lunch and look back on the turning point. The role of the consultant was primarily a catalyst.

The management consultant also benefited: The systematic program of action was not wrong, but it discouraged the father due to the explicit costs. A lesson for the consultancy.

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