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Zugzwang, emerging leadership and succession planning

and intentional moves by the current “Zugzwang” is the term for a move leadership. No chess player starts out in in a game, like chess, wherein one of Zugzwang, just like no business leader the players is at a disadvantage because starts out having difficulty around transithey must make a move. By making tioning and succession planning. This is this move — because they can’t pass a process that develops over time. — the player’s position in the game will Research suggests that 35 percent of Sowcik become significantly weaker. Fortune 500 companies are family-conIn working with many family trolled and represent the wide variety of businesses over the years, it has occurred to me American companies from small business to large orthat often transitioning to the next generation of ganizations. In addition, “family businesses accounts leadership is seen by those in current leadership for 50 percent of U.S. gross domestic product, roles as being “in Zugzwang.” It is a move that the generate 60 percent of the country's employment, founder or current leader must eventually make and accounts for 78 percent of all new job creation.” and it seems that no matter the decision, they will It goes without saying, that family businesses like hurt the family, business or both. Benco Dental, KANE, Sordoni Construction Services, Zugzwang, in the business sense, does not Dempsey Uniform and Linen Supply, Eastern Pennhappen because the next generation of leadership sylvania Supply Company, and Cornell Ironworks does not exist. In fact, in many situations there are have all had a tremendous impact on our region. Just a number of different family members who could taking these six family business into account, they take the reins. Instead, the feeling of a no-win average 108 years of service to our community. situation often comes from the lack of purposeful However, these companies may be the excepBy Dr. Matthew Sowcik

Relationship Realities: Emotionally-

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MARCH 2015

tion rather than the rule. In fact, only 30 percent of family businesses survive into the second generation of leadership and less than 9 percent continue to the third generation. Although a number a variables may account for this drop off from generation to generation, one major cause is the lack of intentional and purposeful succession planning. As suggested by the Family Business Institute, “the research indicates that family business failures can essentially be traced to one factor: an unfortunate lack of family business succession planning.” Succession Issues: From 2007 to 2017, it has been estimated that 40.3 percent of family business owners expected to retire. This transition in leadership will continue to have a significant impact on many of the family businesses in the United States for years to come. Furthermore, research suggests that less than half of those expecting to retire within five years have selected a successor. Why is this the case? Even though 70 percent of family businesses would like to pass on the leadership reins to the next generation, why will only 30 percent actually be successful at the transition? The reason that so many great founders and leaders have difficulty making the transition is due to three different variables. First, the business lacks a defined plan for transition. Most of the time, when I’m discussing succession planning with a family business leader and ask the question, “do you have a succession plan,” here is what happens. First, I receive a look, then they tap on their head, and followed it up with a comment like, “it’s all up here.” The truth is, a plan that is not written down and successfully communicated cannot count as a plan. A plan needs to be developed by numerous stakeholders. A plan needs to be clearly communicated to all individuals likely impacted. One question that frequently surfaces when I’m working with a business on succession planning is, “when is it time to develop a plan?” My immediate thoughts are “there is no time like the present.” However, experts recommend that a plan should be at least in place three to five years prior to the transition. Honestly, I would err on the side of five to 10 years out. Transition works best when handled over time, when future leaders have time to mature, grow and develop into the position. Additionally, time is needed to insure smooth transitions when developing lasting relationships between vendors,

partners, customers and other employees. The second variable that often gets in the way of a successful transition is lack of training and development emerging leaders often receive prior to moving into the leadership role. The development of leaders is an iterative process, which requires leadership development activities that extend over time. Once again, this needs to be an intentional and purposeful process that utilizes appropriate assessment tools to evaluate the emerging leader, provides mentoring/coaching opportunities, and engages the emerging leader in the active development of strengths and opportunity areas. However, the major problem is that most businesses do not have organizational/leadership development training specialists to develop in-house leadership programs. The third variable that hinders successful transitioning is the final selection process. I have found in working with great leaders that one common characteristic they all share is the willingness to make the hard decision. In most cases, not pushing difficult decisions off on others is a very honorable characteristic. However, in this case it often leads to two different results. First, it puts an unfair burden on the family business leader. Secondly, it often promotes an environment where the decision is pushed off till the last possible moment. Decisions that are pushed off are eventually made at the wrong time — very close to the time when the founder is planning to step down or worse, when tragedy strikes. In both cases the organization is already dealing with emotion and change. Adding more due to successor selection starts the new leader off on the wrong foot. One solution is to begin an advisory board and/ or a family council to help make the final decision. The board can provide guidance and support in making the decision. Additionally, the board can help the current leader identify those characteristics that would be most beneficial in selecting a successor. Finally, the most important role an advisory board can play is to keep the process fair. Without planning, providing leadership development, and establishing a selection process, it’s clear why family business see succession planning as being “in Zugzwang.” Unfortunately, unlike chess, the only opponent who puts you in this no-win situation is you. Dr. Matthew Sowcik is an assistant professor in leadership studies and the director of leadership education in the Department of Entrepreneurship and Leadership Studies at Wilkes University.

Northeast Pennsylvania Business Journal March 2015  
Northeast Pennsylvania Business Journal March 2015  

March 2015