A Perplexing Question

Larry Grypp

Larry Grypp, President of the Goering Center
March 2016

“Are you ready?”

When it comes to leadership succession in a family business, that’s the central question — but to whom does it apply?

After many years conducting the Goering Center’s Next Generation Institute, we have observed that succession is often pegged to the retiring owner’s readiness to leave. After all, they have a legacy at stake. They are often in the final push of business growth initiatives started years before, and may also have risen to a position of influence and impact in the community. For some, the role of CEO is inseparable from their sense of identity.

Tough to walk away from that.

According to The Conference Board, a global, independent business membership and research association, the average tenure of a Fortune 500 CEO is 9.7 years. In public companies, it is the board of directors, not the CEO, who determines how long the CEO will be in place.

While we can debate the short-term mentality or vagaries of public company governance, the principle remains that the CEO can be a poor judge of when it is time to go. There has to be something that at least nudges the decision, and perhaps even forces it.

In a family business, the CEO is likely the largest shareholder, particularly when the CEO is also the founder. They are a steward of the family’s wealth, with all the incumbent duties to lead and fortify the company for the future.

Yet that same person is challenged to look in the mirror and say it’s time to step down. In many ways, they are their own conflict of interest.

During his career, Bush Brothers’ Chairman, Jim Ethier, established a mandatory age 70 retirement for the baked bean company’s CEO. Ethier believed that preparing the incoming CEO was a key duty of the retiring CEO, and at a recent conference of family businesses, he said the timeline should be determined by when the successor — not the CEO — is ready.

Yes, that reflection in the mirror will be a challenge when a successor is not prepared and waiting. But with foresight and focus, it is possible.