Filling Your Own Shoes: How to Pick a Successor for Your Family Business

One of the things I’m often called upon to do is pick a successor for a family business. In an ideal world this is a process that the owners of a business would have already done in an organized and orderly way. (For tips on how to do that, see my previous post.)

However, that is often not the case. Generally by the time I get involved, a company is already in a financial crisis or the owner has suddenly died without a successor. Not the best scenario.

No matter what the situation, and whether it’s a family business or not, I follow the same process to determine who should take over the company. It involves a lot of talking. To a lot of people.

After inheriting 13,000 clown items from his father-in-law, Richard Levine decided to go into the family “business.” (Photo from now.msn.com)

I talk first to all the members of the family. If there are two uncles, five siblings and seven cousins working for the business, I’ll talk to all of them. And if both mom and dad are involved, I want to hear from each of them separately.

Obviously, in a family situation there are emotions and years of history involved. I take that into account. If one guy says that his brother Joe can barely find the restroom on his own and breaks into a sweat if he is ever called upon to speak in a meeting, I consider the influence that sibling rivalry may have on his perspective.

But if five people tell me the same thing, well then, Joe doesn’t need to update his business cards with a new title any time soon.

Here’s a partial list of what I want to know about people who are under consideration to take over:

• What is their knowledge of the products or services provided by the company?

• Do they have drive and initiative?

• Do they display passion about the company?

• Do they get along with people?

• What are their strengths and weaknesses?

• Do they have an entrepreneurial spirit?

• How do they handle success?

• Are they respected by their colleagues?

• Do they have any managerial skills?

• How do they deal with a crisis?

• Do they function well on a team?

• Do they listen to and consider other’s opinions?

• What is their educational background?

• What other positions have they held in the company?

I also talk to senior managers and other non-family members in the company, as well as the company’s business advisors, such as accountants and lawyers, for a fuller picture of the people involved.

Sometimes I suggest psychological and aptitude testing to help discover untapped qualities and abilities.

But let’s say Dad has already selected a successor. Junior will definitely be taking over when he retires and I’ve been called in to help educate the company about the succession plan or some other aspect of running the company.

I still want to speak with Junior, asking him the same questions, and speak to other key employees about Junior. The goal is to determine Junior’s strengths and weaknesses and where he may need to beef up his skills for his future role.

Junior may be a killer sales person but has no managerial experience. Or let’s say Junior has the necessary drive and passion for the business, but doesn’t know the product line or how the company operates. Dad needs to determine the best way for Junior to grow from a business knowledge standpoint. He needs to start grooming him to take over as soon as he is selected as successor.

I may suggest that Junior attend night school to get an MBA, or go on sales calls with experienced sales people to learn the products and the marketplace.

You don’t want Junior to be surprised or unprepared to assume the responsibilities of his new position.

After I’ve gathered all the information I can, I sit down with the owner of the business and go over it with my suggestion for who is best qualified to take over. I tell him or her that it doesn’t matter who has been chosen the anointed one when I get there. What matters is who the anointed one is when we leave.

I’d like to close with one amusing example of an unexpected “business” inheritance. Richard Levine took over and runs the Waterboy Sprinklers business that his father-in-law started in the 1970s. But he got a different type of inheritance when his father-in-law died recently — 13,000 clown items. In his retirement, “Clown Jackey” Kline often dressed as a clown to visit children’s museums and opened the Clown Rushmore museum in Winter Haven, Florida with his massive clown collection.

Although he was shocked by the inheritance, Richard carted several truckloads of clown memorabilia to Central Florida, where he will sell some items to raise money to resurrect Clown Rushmore and will give away Clown Jackey dolls to challenged children.

But he knows he isn’t truly qualified to handle all aspects of this particular family business. So he has enrolled in Clown College, on his way to becoming “Clown Richey.”

All in the Family: Succession at The New York Times

The publishers of The New York Times, from left to right: Adolph S. Ochs (who ran the newspaper from 1896 to 1935); Arthur Hays Sulzberger (1935–61); Orvil E. Dryfoos (1961–63); Arthur Ochs Sulzberger (1963–92); and Arthur Ochs Sulzberger Jr. (1992–present). The photo appeared in an article in Vanity Fair. *

When a family member died unexpectedly, he was given the reins to the family business, the third generation to run it. He was just 37, and although he had been an exec at the company, he described his position as “vice president in charge of nothing.”

Arthur Ochs Sulzberger, former publisher of the New York Times, died this week at the age of 86.

The “newspaper of record” won 31 Pulitzer Prizes during his tenure. Punch, as he was known, is remembered for being a staunch defender of freedom of the press, no more so than when he made the controversial move to publish the infamous Pentagon Papers on the front page in 1971 about the U.S. involvement in the Vietnam War.

That got the New York Times involved in a skirmish of its own — the lawsuit for libel landmark New York Times vs. Sullivan, which became a landmark First Amendment decision by the Supreme Court.

Punch’s death brings to mind a topic that I deal with often in my work as a turnaround specialist: succession in family businesses. As I mentioned in my last post in this series on family businesses, the greatest threat to a family business is the failure to plan and manage succession well.

There were no emergency family meetings called when Punch died, no anxious creditors waiting at the door, wondering who would be running the company. No sibling infighting, lock changing or festering family feuds.

Arthur Sulzberger had turned the reins over 20 years prior. In 1992, his then 40-year-old son Arthur Ochs Sulzberger Jr., became publisher.

Punch’s transition to the top post wasn’t as easy. Although he was working at the Times, he thought he had several more years before he’d take over from his brother-in-law, Orvil Dryfoos, who had become publisher in 1961.

Then Orvil died suddenly just two years later from heart failure at the age of 50. And Arthur’s time had come. From vice president in charge of nothing to publisher of the New York Times. Not exactly an optimal situation for the continued smooth running of a company.

It worked out in his case. During his tenure revenues of the Times’ corporate parent rose from $100 million to $1.7 billion, and circulation for the Old Gray Lady soared from 714,000 to 1.1 million.

But it doesn’t always go so well. That’s when I get hired.

The Times in now being run by a member of the fifth generation, with a sixth on his way up. Punch’s grandson, Arthur Gregg Sulzberger, joined the Times in 2009 as a reporter and was promoted earlier this year to editor on the Times metro desk, and is reported to be in line to take over one day.

Joseph Astrachan, a professor of management and entrepreneurship at Kennesaw State University in Georgia who studies family businesses, said in an article in USA Today that the odds of a family business surviving to the sixth generation are 500 to 1.

The New York Times may beat those odds. Wouldn’t you like your family business to as well? Do you have a family succession plan in place?

* Photo Illustration by Chris Mueller; Digital Colorization by Lorna Clark. Photographs, From Left: From The Museum of the City Of New York/Getty Images; From Bettmann/Corbis (3); By Andrea Renault/Globe Photos; From Granger Collection (Background Headlines). All Other Newspapers: From Bettmann/Corbis.