Succession: Whom to Choose

This year marks the 100th anniversary of the outbreak of the First World War, the most horrific war in human history up to that time. For four long years combatants dug in for indecisive trench warfare and industrialized slaughter that claimed 17 million lives. The optimism and faith in progress that had energized Western civilization before the war gave way to disillusionment and the "lost generation" afterward. Out of the rubble of World War I followed a second global war and then a third Cold one. To this day historians debate the causes.

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Empires, like many family businesses, may fail, flounder or prosper, yet most seek to pass ownership to succeeding generations. From the standpoint of continuity and longevity, the Roman Empire was perhaps history’s most successful. And yet its first emperor, Augustus, was an unlikely successor to that of his great uncle, Julius Caesar.

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I often refer to myself as the “illegitimate” third generation of Ostbye & Anderson, the Minneapolis jewelry manufacturer founded by my wife’s family in 1920. My father-in-law never liked being a part of the company and discouraged me from joining. Yet after 12 years in other jobs and industries, I brought my experience and skills into the family business in 1978.

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Most family businesses can note a specific moment when one generation steps back from management and the next takes over. But at Chicago-based manufacturer and distributor Magid Glove & Safety Manufacturing Co. LLC, the generational transition has been going on for seven years —and it’s not over yet.

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In my travels around the family business transition landscape, I have come to recognize four landmarks that indicate a succession plan going well. Especially in the third or fourth generations, when the power of the founder’s personality has mellowed and expectations of six-figure salaries have become the norm, it helps to take a look from the 30,000-foot perspective.

I have identified four landmarks of a healthy succession landscape: integrity, innovation, competence and collaboration. The accompanying grid provides a framework for assessment and further discussion. 

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One of us (Dan) recently found himself working with the designated successor of a family business, helping her develop additional leadership skills that would eventually allow her to take over the reins of the company. This successor (we’ll call her Mary) had prepared herself well. She had earned an MBA at a prestigious business school and then worked for five years at another company, garnering professional expertise.

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Family life, even under the best of conditions, is difficult. Business, even under the best conditions, is difficult. Combine the two and life can become extremely stressful. In fact, business problems do not simply add challenges to family relationships. They intensify family problems, often bringing out latent ill feeling within the family unit. In mathematical terms, business challenges have a multiplier effect on family conflicts.

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About 20 years ago, Paul C. Darley, his brother Peter and his cousin Jeff joined eight non-family managers at a management meeting for W.S. Darley & Co., a manufacturer of fire trucks and firefighting equipment based in Itasca, Ill. They waited for Peter and Paul’s father, Bill Darley, the president, CEO and patriarch, to arrive.

“He walked into the room and said, ‘I’m the ghost of Bill Darley. Bill was killed in a car accident driving up here today. What are you going to do?’” Paul Darley recalls. “It caught us off guard.”

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Money isn’t everything

What the Dillards, Boscovs and Redstones
could learn from Curtis Carlson.

“Any enterprise requires three components,” the late relentless Minnesota entrepreneur Curtis Carlson (Gold Bond Stamps, Radisson Hotels, TGI Friday’s restaurants, etc.) once remarked to me. “You need a good idea; you need the talent to execute the idea; and you need the capital to pay for it. Of those three, raising the capital is the toughest part of the equation.”

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One of the calls I receive most often as a family business consultant comes from a patriarch who wants help with a momentous choice: determining who will succeed him as leader of the business. The CEO wants assurance that he is making the right decision. He believes that assessment tools can take away some of the risk and help him determine the right person, or ratify the selection he has made. But while such tools may indeed reveal important information, they cannot predict the future.

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