Who Will Run Your Business When You Are Gone?

Procrastination is hardly a word that defines the nature of the world’s construction leaders. However, the same group of leaders that have forged the strongest construction empires procrastinate about the one element that often requires them to examine their own mortality—ownership transfer. There are many cases in which owners decide that they are having too much fun to hang up the saddle. Reminiscent of the cowboys of old, going out “with their boots on” seems like an acceptable approach.

On the other hand, there are plenty of leaders who want to enjoy the later years in life, but choose to kick the can down the road. Living in a reactive construction universe creates a lack of proactive strategy. Building backlog over the next 6 to 12 months is often the most immediate and urgent task that requires an owner’s attention. Unfortunately, the same can that was kicked year in and year out tends to come back around sooner than you think.

The Strategic View

Strategic plans often focus outward. Finding new customers and new markets trump dealing with immediate personnel challenges. Furthermore, talent development appears limited to younger or newer associates. Onboarding and education focuses on expediting growth of that newer generation to serve as a catalyst for volume growth. However, strategic planning should include the following elements:

• Gap analyses—As leaders move up in the organization, note what positions are vacated, leaving voids in talent.
• Training the successor—For the next generation leadership group, what concrete plans are being utilized to avoid large gaps?
• Ownership transfer modeling—How will ownership be compensated for their shares/equity? Put another way, how long will it take for the purchasers to acquire the funds to make the buy-out effective?
• Management succession—Some organizations steer toward an Employee Stock Option Plan (ESOP). While this solves the aforementioned ownership transfer problem, there is still the dilemma of management succession. You will still need someone to run the business, even if the stock is handled.

The most important item to recognize is that ownership transfer/management succession should become part of the firm’s strategic plan. Training is often viewed in the short view—provide skills to improve profitability, customer relations and efficiency. Instead, take the long view—migrate skill development to teaching people to lead the business, rather than just projects.

Invincibility & the Transition Dilemma

There are plenty of people who truly enjoy everything about the construction industry and their career. Ending their career not only represents an end to this fun, but also a possible mortality indication. Failing to deal with succession allows leaders to brush this critical issue under the carpet. There are countless tales of business failure due to succession issues. Potential successors need to see the light at the end of a current owner’s tunnel. If they don’t see opportunity, they will go somewhere that will give them what they seek. Do not let pride write a chapter in your firm’s strategic plan that will only doom it in the long term.

Future Generations of Ownership

The secret to managing younger generations dominates the headlines of many business journals. One consideration that should be recognized sooner rather than later is the desire of the millennial generation and their perspectives on ownership. Regardless of age, there are plenty of talented individuals that are excellent managers, but have zero desire to be an owner. The lesson is this—educate your “high potentials” early and often on what it means to be an owner. For all of the positive aspects, there is no shortage of entanglements that owners deal with daily that may dissuade someone. This is something to know early in the ownership transfer/management succession process.

Management Depth

Running a business requires so much more than just the CEO or president. Who will succeed your general superintendent? Your top senior project manager? Your controller? As discussed before, the gap analysis is imperative to identify massive operational voids that will be left with retirements and departures. To put it bluntly, what if a key leader were to go down due to a health issue? What happens to the business? While it seems callous to even consider at a time such as this, the business must persevere. Management succession is as important as ownership transfer.

Family

Family-owned businesses and construction often go hand in hand. For many leaders, it is important to maintain the sanctity of being family owned. There are many considerations that firms should recognize when dealing with family issues, including:

• Development of future owners—It is a safe bet to realize that leadership traits are not genetically predisposed. How will future leaders be grown? Should family members be forced to leave the family fold before they assume any role in the business?
• Considerations of non-family members—Are you losing talent because you are not willing to look outside of the family for management or leadership? Is the maintenance of the family name that important to you, or is maintaining a vibrant business for future generations more important?
• Make them earn it—Fair or not, family members always face a cynical, uphill battle: “They are only in that position because of their name…” The most successful transitions usually involve family members that have spent time in the trenches, whether figuratively or literally. While this isn’t always feasible, think about the future generations’ credibility and the loyalty of the team they will eventually lead.
• Rules of engagement—Family members may not be in the immediate future. This is the perfect time to develop rules around the treatment of a brother, sister, son, daughter, niece or nephew. Rather than make case-by-case determinations, create fair and equitable rules around:
• Ownership limits
• Assumption of ownership
• Voting rights
• Extended family rules

Ownership transfer and management succession are two deeply integrated issues every firm will deal with multiple times throughout its life. In the end, every business also has the opportunity to simply close the doors when the time is right. Most leaders realize we are all custodians, keeping the seat warm for the next generation with the desire to leave a successful legacy for the second and third generations. However, the strategy and tactics must be well thought out and deliberate.