GENERATIONS IN SUCCESSION PLANNING AND MANAGEMENT

Phuoc D. Nguyen

It is estimated that 70% will not survive into the second generation, and 90% will not make it to the third generation (Walsh, 2011). The percentage of surviving family businesses increasing gradually from the second generation to the third generation and the next generations. One of the root causes is bad SP&M or no SP&M in the majority of family businesses. Family businesses are usually planned just SP&M to the CEO position. This is a big gap in the SP&M because if family businesses have not planned the succession to other management positions they have not a strong management team synchronized in terms of management capacity. After all, the owner is just interested in management mentoring for the potential CEO position. A good CEO makes it very difficult to lead and manage the management team members who are weak in management capabilities.

Rothwell (2010) indicates “The fourth generation moves beyond simple replacement plans to focus on the development of internal talent pools, which are groups of people inside the organization who are being developed for the future. The fifth generation focuses on the development of external talent pools, which are groups of people outside the organization who are possible sources of talent for the future… The fifth generation of SP&M is the most sophisticated.” (pp. 77-78). Mid-size family businesses should combine to apply Rothwell’s (2010) fourth-generation and fifth-generation indication because the weakness of the fourth generation is just focused on the inside SP&M and the weakness of the fifth generation is just focused on outside SP&M. However, small family businesses and micro-finance family businesses are difficult to combine and apply this approach because these family businesses which all staff who report directly to the CEO. Thus, they do not need immediate management levels.

Dingman (2006) states succession in small family companies was a rare event happening only once a generation and the number of successors was limited to family members. They believed succession in the big publicly owned companies was usually an adaptive process versus a potentially disruptive process in the family-owned companies. Dingman explains the reason for Walsh’s (2011) statistics, small family companies usually implement the SP&M approach with their family members or relatives. Therefore, the number of successors and outside applicants who are not their family members or relatives is very limited to implement the SP&M. Additionally, family businesses are not public companies, thus having no regulations to monitor management practice implementation. Top leaders and managers lead and manage their family business through feeling and they have not established and applied management systems.

Frese (2015) suggests the Model of Successful Succession for the family business. The Model presents three primary steps to reach successful succession which include (1) Process begins – Owner: Initiates the process and selects a potential successor – Successor: Motivated, has demonstrated aptitude, and trusted by owner. Drives process – Mentor: Provides support to owner, successor, and process. Trusted by owner and successor. (2) Successor progression – The successor drives the succession process with role modeling and support from a more capable owner and/or mentor. Builds skills and develops confidence. (3) Process completes –  Successor: New owner and CEO. Competent and running the business. One leader. – Owner: Provides a clear transition to the new CEO and maintains support. – Mentor: Succession role completed, but available as needed. Likely to play a long-term role as a trusted advisor.” (p.133). It is suggested that the mentor instructs the owner to drive the process but not the successor, the process driver is the owner, while the mentor instructs the successor to follow the process. The mentor supports the successor in playing role modeling. The mentor’s role is to advise the owner to implement the SP&M for the new owner (owner’s children or relatives) and new managers. The owner provides a clear transition to the successor through every step of the SP&M process, the successor suggests new competencies to the owner and mentor through the SP&M process if he/she is a capable professional. The owner maintains support for the successor during the period of training as a trainee CEO. Whereas the mentor advises further the successor in the period of trainee CEO and the next steps. Further, the mentor assesses succession implementation in every step of the SP&M process to recommend opportunities for improvement to the successor.