Friends Are Not A Good Succession Move
I have written several blogs on the importance of succession. And let me repeat myself with a story. First the statement - if you own a business or a leader of any type of entity where there is a management function, you need to have a succession plan for when something happens. What happens when you die, who takes over? What happens if you have an addiction problem and you must go into rehabilitation for months, who will take over? What happens if you just want to leave the company or organization, you want to go out and explore the world, who takes over? We could come up with a lot of what happens but let's talk about a story that I saw when I first started out in business with one of my clients. Examples are the best way to learn. Experiences have taught me so much in these last 37 years in business.
I started my firm on the basis that I would take on projects that no one else really wanted to do. One of my first clients was for a man that I had known about in Co-generation power plants. I had sat down with him before when I was with another designer builder company of co-gene. ion power plants out of Finland. Took on this client on because I knew of this guy and my experience as a project administrator of building these huge facilities, as well as operating them, was my cup of tea. I like working with people with good reputations and have built things before. If you ever see my posts about on social media, I am always telling people, don't show me your bling because what impresses me is what you have built. I preach that a lot and I believe in it.
This was a start-up company and had two sets of offices on two floors. The owners were up on the floor above us and all of the support individuals, which included me, was down on another floor and my desk was in the hallway. They have purchased two co-generation power plants and wanted me to consolidate the financial reporting and to work out the contract relationships with the power companies purchasing the power and the box company purchasing the steam to make cardboard boxes. My other role was to report to the investors who had put money or funded the purchase of the power facilities. The company was doing well and took one full floor in La Jolla California, we watched it being built. Marble floors, private dining rooms, everyone had an office, a huge board room. At my early age I was impressed. The day finally came when I moved out of the hallway into my own office.
The company was out and buying other co-generation power plants, different managers came in and out. In a start-up people change a lot because the need of the company changes as it grows. Now, let us get back to the founder and his story. The founder decided to hire an individual who he had gone to school with at a prestigious university. The new man came in and started to make some changes without talking to the founder. People in the office started to not trust this individual, he was not experienced in the industry, and he seemed a little shady. At Christmas time we had the big party at his home on the hills of La Jolla, beautiful event. I noticed that the founder missed most of the party because he was, well let's just say it, plastered. I am the type of individual that watches and listens, so I know what is happening within a client firm, and what I saw was not good.
After Christmas the founder went into rehab to fix himself. While he was in there his friend took over. Within two weeks after that he forced the founder out and took over the company. A year later the company closed because of mismanagement. A succession plan was not in place. An individual took over that had no experience in the co-generation industry. A succession plan should have said, that in order for the company to go forward without the founder that an the replacement needs to have x-y & z, that the individual is monitored by the board or outside management advisor, and that when businesses started to go bad that a decision should have been made to adjust the company and the management of the company.
Succession plans could have saved the company because the friend would not have taken control. Lucky for me my contract was finished, and I had accomplished what I was hired to do. However, the investors were not happy because the projects were pulling so much money out of the projects that the investors were not being paid. One afternoon the biggest investor of all time flew in from New York with his team of attorneys and finance people. You would know him if I told you and you would also know that this investor meant business on everything he did or touched. They walked in, were put into the board room and then I was asked to join them. Then the Vice President of Finance was asked to join them. The new guy who took over the company went into hiding. So that was the day that I became the mediator between my client and the investor. We worked out a plan, we set some objectives to live up to, and we parted our pays. The biggest issue was the management fees that the owners had been taken and that became reduced and frozen. When an investor just shows up with his attorneys and finance people you know there is a dispute that needs to be resolved. My contract was up, I did my duties, and I went on to another assignment. However, the guy who took over the company ran the business into the ground. The investors took over the projects and the founder had nothing.
Succession, and the role of management is everything when it comes to their leaving for any reason. It must be thought out, planned, announcements made, investors communicated to, bankers told of the new management. It must be in writing and reviewed by a transition team from time to time. It also takes place internally to identify who has the talent to lead, do they have the experience or training, HR needs to be involved with all aspects of it or hire an outside mediator to sit down with management and HR to go through the structure, strengths, and weaknesses, and write a formal plan. If you have not done it, do it because it is vital for the survival of your business and make sure there is a leader who can lead instead of trying to take over the company.
I do not know if you have been watching the HBO series "Succession". Good show and in family or publicly traded companies, the succession can go crazy as displayed in the show. So, plan well for the succession of your leaders and owners.
#mediation #successor #business #businessmediation #disputes
#ADR #smallbusiness #Wallstreet #leadership #management
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Michael Lodge is a Nationally Certified Professional Mediator specializing in business disputes, as well as family conflicts. He has written three books and hosts an international podcast on IHeartRadio and other podcast media stations.