Preparing the Next Generation to Lead

First, some background on this article. 

Last year I got a phone call from one of my old clients from the bay area.  I hadn’t seen Ken since I moved to Modesto in 2004 so it was great to hear from him.  We met back around 2001 through a mutual acquaintance who suggested to Ken I might be able to help him with a succession plan he wanted to develop.  Ken owned a manufacturing business, was approaching 65, and wanted to figure out how to pass the business to his son John.  We hit it off right away and began to work together.  After exploring a number of options we developed a plan which formally transferred the business to his son at the beginning of 2003. 

The last time I saw Ken and John was at the end of 2003.  During the meeting they let me know things were working well.  Ken was doing a lot of traveling and working hard to improve his golf score.  John was keeping the business on track and feeling great that he was now in charge.

So when Ken called me last year I was happy to get together and get reacquainted.  Since most of my meetings with Ken included John, I was surprised when he showed up at lunch alone.  As it turned out, Ken wanted to discuss his concerns about the direction the company was heading in and John’s approach to managing through the recession. 

Here are the major points Ken made during our meeting.  The business had done well through 2007.  But as the impact of the recession of 2007 broadened, there was a meltdown in their industry.  Sales dropped and profitability went negative.  John was very slow to respond to the downturn expecting things to turn around.  He ended up using the company’s substantial reserves to cover operating losses.  At the point John called Ken for advice, the company already had severe cash flow problems.

Ken finally got to the reason he wanted to meet.  He wanted advice on how best to proceed in helping John.  He was concerned that if he didn’t play an active role the company would have to close its doors.  But he was also concerned about how his involvement would impact his son’s credibility with the other employees in the organization and with John’s own sense of confidence. 

We both agreed nobody benefited if the company failed so the right course of action was to save it if that were possible.  We also felt it was important to make John feel that he was part of the solution pointing out to him this was the worst economy any of us had seen during our lifetimes.

Now to the point of this article.   One of the cornerstones of good succession planning is adequately preparing an organization’s future leaders so they will be able to effectively lead the organization.  While courses provide a good foundation for learning, the only real teacher of any consequence is experience.  Large companies recognize this.  They develop future leaders by periodically changing their assignments.  These new assignments increase the knowledge and cross functional skills of these candidates.  As Malcolm Gladwell observed, “Instinct is the gift of experience”.

For privately held companies the opportunity to move future leaders around poses big challenges since the organizational structure and depth is normally flat.  As a result, business owners must develop creative ways to continuously broaden the future leader’s knowledge, skills, and experiences.  Stretch assignments must be developed to expose them to as many unique situations as possible.  Business owners must be willing to let these future leaders fail on assignments.  As the recent economic downturn demonstrated, life is hard.  Successful people don’t always make the right call, but they do tend to get to the right outcome even if the call was wrong.

That brings me to my next point.  While training on the technical aspects of the job are important, it’s the soft skills that often make the difference between success and failure.  Warren Bennis and Noel Tichy pointed out in their book Judgment great leaders tend to excel in their judgments regarding people, strategy, and crisis.  So developing experience in these areas is critical for future leaders. 

Let’s break these down.

1. People Judgment - Leaders who make good judgment calls about people know how to pick the right people for their team and know how to get the most out of them.  Training must focus on selection, development, and supervision.
   
   
2. Strategic Judgment - Leaders must know how to set a strategy and manage its execution.  But they also must know how to find a new path if the plan they’re executing is not leading toward success.  Training must teach future leaders how to assess situations and make course corrections when necessary.
   
   
3. Crisis Judgment - Since most companies experience some form of crisis periodically, leaders must know how to set direction during a crisis and keep everyone focused during these times.  Future leaders must be involved as crisis’ emerge so they develop a clear understanding of how to deal with them.

The development necessary in these areas takes time.  Good succession plans require enough time so the future leaders develop the instinct they’ll need for the job especially in the areas of people, strategy, and managing through crisis.  Our experience indicates it takes a good 5-10 years to develop a good level of proficiency.

As the future leaders hone their skills you have a chance to determine if they can really handle the responsibilities of the job.  If they can’t you need to be honest with yourself and move in a different direction.  Sometimes you can bridge the gap by hiring someone with the skills that are needed.  In other cases the sale of the business might be more appropriate.  These are tough decisions so if you need help, consider developing an advisory board whose main objective is to help you with the succession process.

As for John, things worked out.  Ken and I met with him last year and talked about the challenges.  Turns out he really wanted help, just didn’t know how to ask.  At that time we worked out major expense reductions designed to stop the bleeding.  Since then they’ve focused on finding new markets for their products.  Spoke to John last week, sales are up from last year and they’re seeing some daylight ahead.  Things are still tough, but he feels they’re through the worst of it.  Ken agrees.

Bob Draizen