An owner's death has a substantial emotional impact
When planning a family business transition, owners tend to give too little attention to the actual operational succession of the business. While generally they spend an adequate amount of time on estate planning, tax and control matters, they often fail to ensure the executive leadership of the company is properly transitioned (or they incorrectly believe that the transition is solid).
According to some professionals, this planning deficiency occurs because business owners avoid facing their own mortality or are optimistic about others’ ability to fill the void. I maintain, however, that these owners simply do not understand the emotional impact that their death will have on their employees and family members in the business. They are unaware that these emotions will trigger natural reactions with undesirable consequences. Business owners can mitigate many potential problems by paying more attention to transitioning operational leadership.
Transitions are difficult
Why do business owners fail to make the succession of the company’s operational leadership their No. 1 priority? I believe that one major disconnect occurs because CEOs and owners are leaders who are wired differently from most people. They are generally independent, self-sustaining individuals who deal with uncertainty and business risk on a daily basis. They do not recognize that most people live their lives from a perspective of dependence and actively seek lives of certainty. This leads the CEO to discount the reactions and emotions his or her passing will cause and the uncertainty it will trigger among surviving family members and employees.
When the owner dies, relatives and employees naturally wonder, “What is going to happen to the company, and how will this affect me?” These insecurities lead to distracted thoughts, a loss of concentration and a preoccupation with potential uncertainties. This is an almost universal reaction, and the effects are profound.
Impact of uncertainty and grief
The Grief Recovery Institute’s research report, “The Grief Index,” found that 85% of senior executives acknowledged their decision making was “poor” to “fair” after the loss of a loved one. In the same study, 60% of the executives admitted that decisions made during this period had a negative financial impact on the company. The major reason given by 90% of respondents was a loss of concentration.
Lost concentration stemming from uncertainty and insecurity could (and should be expected to) negatively affect the business at all levels. At the blue-collar level, there is a higher likelihood of quality issues or worker accidents. At the white-collar level, increased data entry mistakes, reduced customer service and lack of follow-through could result. At the executive level, poor decisions, indecisiveness or risk-averse decision making should be expected.
Another powerful dynamic is a function of the cumulative nature of grief. According to grief organizations, many people who seek counseling report that when a loss occurs, emotions from a past loss are triggered, compounding the emotional reaction.
In family businesses it is routinely incorrectly assumed that only the family members are substantially affected by the loss of the owner. In reality the business owner is a significant life leader for the employees, who depend on that person for their livelihood. The term “work parent” has recently been used to describe this relationship.
The current loss (the owner’s death) will kindle emotions surrounding the death of other leaders in employees’ lives, specifically their parents (or, if their parents are still alive, the fear of losing them). The emotions of the past loss will magnify the grief felt from the owner’s death, further sapping emotional energy and heightening their current reactions. Employees may withdraw, become combative, fail to make decisions or act less rationally.
For these reasons, employees may react more strongly to the owner’s death than they would to the death of any other person in the organization. Business owners should be aware of this dynamic.
A different set of issues, centering on a leadership void, might surface if the operational leadership of the company has not been properly transitioned. There are many unpleasant stories of conflict as the senior leadership or family members position themselves for control and influence. This conflict is often explained away as ill-placed ambition, egotism or greed. The implication is that rough transitions result from calculated manipulation by people with misguided aspirations. However, the drive for additional power is not necessarily born of ambition. With power comes control, and with greater control comes increased security during a very uncertain time.
Human beings are naturally driven to reduce uncertainty in their lives. Even well-meaning people’s survival instincts can lead to this drive for security. Therefore, if a leadership void exists, these instinctual actions and positioning can be expected and are almost unavoidable.
Unlike when a hand is removed from a bucket of water, the leadership void is not filled in a calm and fluid manner. Plenty of water can end up on the floor or the bucket can be tipped over.
The solution: A solid transition plan
Strong emotions are inevitable when a business owner dies, but what is not inevitable is that these emotions will have a detrimental effect on the business. To avoid the undesirable consequences and set the successor up for the greatest likelihood of success, every effort must be made to ensure the transition of operational leadership. The goals are to:
• Reduce uncertainty and fear.
• Provide an environment of continued assured leadership.
• Avoid a leadership void.
What constitutes effective execution of an operational leadership succession plan? How do you determine if the successor has been put in the best position to succeed? At a minimum, the following cornerstones must be in place:
1. There must be a fully functional, self-accountable senior leadership team who have a shared vision of the business, are working together effectively to execute the business plan, are measuring and monitoring the business effectively on a weekly basis and are collaborating to implement the company’s major initiatives to build the business for the future.
2. The self-accountable senior leadership team must be able to effectively run all aspects of the business if the owner is away from the company for a month.
3. In the absence of the owner, the identified successor CEO is heading the company’s leadership team.
Effectively transitioning the operational leadership involves considerable effort and may take years to complete. But successful implementation of the plan is essential in order to mitigate emotional uncertainty and unhealthy positioning to the greatest extent possible.
It is imperative for business owners to put themselves in their employees’ place and understand that their death will trigger many powerful emotions that have far-reaching consequences. The resulting stress can significantly affect the business, thus threatening the livelihoods of employees and surviving family members. Companies that are prepared to implement an operational transition plan will be set up for success when the inevitable transition occurs.
Bob Deprez is the founder of Deprez Leadership (www.deprezleadership.com), which provides leadership transition advisory and interim CEO services to middle-market companies. He is also a certified grief specialist trained through the Grief Recovery Institute.
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