Lining up future leadership is necessary for a seamless transition when an executive sells, retires, or otherwise exits the business; and overlooking this process can leave a company in turmoil.
Mark McLean, Roseburg Forest Products
Succession planning is a key consideration for any company in any line of work; but having an “heir to the throne” is of monumental importance for industries—like the wood products sector—that are largely populated by family businesses. Our firms tend to be very relationship-oriented; they’re built on handshake integrity. We trade hundreds of millions of dollars every day on a verbal commitment, and everyone keeps their word wherever they are in the supply chain. Maintaining these trusted relationships with customers and vendors is crucial when leadership turns over and/or business structure changes, and succession planning is essential to that continuity. Despite the potential ramifications of having an executive vacuum, many firms are making do without a succession plan and hoping that the worst-case scenario never happens. Some procrastinate on the process of adopting a plan; others blindly believe they will never have a need for one; and yet others simply hold their breath, counting on a family member to step in and the chips to all just fall into place when the unplanned occurs. What often happens instead is that key members of the executive team and high-level managers are dissatisfied with the sudden and forced changes; many opt to leave; and the organization finds itself in flux.
When circumstances—whether anticipated, like a retirement, or unforeseen, such as an untimely death—create a gap in leadership, decision-makers can respond in several different ways. The obvious choice with family-owned businesses is to hand off to the next generation—typically a relative of the current company head. But what if the existing CEO doesn’t have any children? Or what if the child and/or relative has chosen a different career path? As an alternative, companies can create an ESOP (employee stock ownership plan) and sell the business to the people on its payroll; this requires a corporate culture where workers are interested in more than just a job. Other options might be to sell to an industry consolidator or venture capital firm, or to merge with another company.
The Roseburg Experience
Alternatively, you can follow the example set by Roseburg Forest Products, which has been family-managed for two generations—or roughly 80 years. Our former president and CEO just retired in 2016 at age 75; but years of succession planning made for a smooth transition. Although he has three children who are dedicated to and passionate about the industry and the business established and managed by their grandfather and father respectively, they did not have the desire to take over the day-to-day operations. Knowing this, Roseburg assembled an outside board of directors just over a decade ago to co-exist alongside the family board. The directors on this outside board, whose own successes are not necessarily tied to the company’s fortunes, were tasked with providing unbiased, third-party counsel on succession planning and other issues. Not long after establishing the second board, Roseburg began developing a professional management team to help determine the successor to our soon-to-retire leader. Each individual on the team was exceptional in their own right, and the president eventually selected his replacement from this elite group. Although the new president/CEO was not a direct descendant of the outgoing executive, the family retained ownership of the company—which is now poised for stability for at least one more generation, or another 30-40 years. It was a long-term process, but well worth the time and effort put into it. A large part of our success can be attributed to a focus on cohesiveness among executive team members.
Pat Lencioni, an authority and author on business management, says there are two types of firms: “smart” companies, where everybody is very good at what they do but don’t necessarily mesh personality-wise; and “healthy” companies, where there is a huge focus on relationships and personality—but the leaders are also smart. Assembling an executive team that has this type of cohesive interpersonal chemistry will likely take time and involve multiple iterations. When our former president began building his executive team, he was careful to choose candidates who not only shared a common purpose but who also got along well. That, along with professional excellence, is a critical element in a successful business environment. When it is absent, there is a risk that executives might move on; and, believe it, one person can make a huge difference in the culture of an organization. The absolutely most important thing is to have an executive team in place that works well together and that has each other’s backs. If you bring in an outsider who doesn’t understand the culture that’s been developed, then you run the risk of those current executives, leaving to pursue other opportunities, creating further turmoil in the ranks.
In summary, Priority #1 is to get prepared. You cannot assume that it will all come together naturally; it takes a great deal of work and effort. I also would recommend that if you’re a family-owned organization and don’t have an outside board already, that you commit to putting one together. And even if you’re in a leadership role and plan on being around for the long term, it’s important to build your organization so that you ultimately can select someone—family or otherwise—from your current executive team. It’s also critical that the executive team that you have in place includes individuals who are supportive of each other, for the good of the whole. The next step, if you haven’t thought about it, is to get the family together and ask the important questions. Is there a natural successor who is qualified and wants to step forward for a future leadership position? If not, is maintaining family ownership the preferred direction; or would the owners rather divest of the business? Regardless of how you approach succession planning, the point is that it must be addressed and addressed now, before any turbulent events occur. “Hope” is not a strategy!
Mark McLean of Roseburg Forest Products is the 2017 NAWLA Marketing Committee Chair.