It Oughta Be Easy, Oughta Be Simple Enough

It Oughta Be Easy, Oughta Be Simple Enough

But it’s not. In “Tunnel of Love,” Springsteen was referring to the fears, suspicions, and secrets contributing to a failing marriage. These same “soft” features are far too often the culprits that cause leadership and ownership transitions to fail in the AE industry. It’s hardly ever the financials that cause an ownership or leadership transition to fail. Nine out of ten times it’s some combination of these soft items. 

In his article this week, Mark Goodale has great advice for how to set the stage for a successful passing of the baton from one generation to the next.  But, if your transition started out with high hopes but is now “stuck,” there’s every chance it’s due to one or more unresolved psychological or emotional barriers in the mix. Some of these affect the departing/selling owners/leaders and cause them to drag their feet or abandon the process altogether. Others inhibit the next generation from moving forward, making decisions, and assuming the leadership of the firm.  

The first step in remedying these issues is to recognize them. Here’s a description of some of the more common psychological/emotional baggage items that can gum up the works of a perfectly good transition plan and who typically puts them in play.

What selling shareholders/departing leaders bring:

1. Into the great wide open? Endless golf, sailing, world travel, select board engagements, and unlimited time with spouses, children, and grandkids may seem like a pretty appealing next chapter for most CEOs. But when you consider that the average CEO has spent 25 years with their current firm and is on average 65 years old when they retire, it can be difficult to step away. Most have a powerful, deep-seated—if unacknowledged or unspoken—relationship with their firm and their role. The daily routine. The ability to call the shots. The love/respect they get from employees, clients, and peers. None of these are easy to give up. As “retirement date” gets closer, some CEOs balk at leaving it all behind and look to find reasons to defer or delay the transition.

2. The skeptic two-step: In these days of sky-high firm valuations and a seemingly endless stream of unsolicited lucrative offers from enthusiastic investors and strategic acquirers to buy their firms, most departing leadership teams and senior selling shareholders are well aware of the immediate wealth that awaits them should they decide to sell externally rather than transition internally. Ideally, they have factored this into their assessment of their strategic options and decided that their preferred route was an internal transition—for all the “right” reasons. But all it takes is a series of poor decisions or some bad judgement calls by next-generation leaders. Or for the next-generation folks to demonstrate some hesitancy about taking on more risk. Or for them to express reluctance to provide more fulsome guarantees to the selling shareholders. Or for them to balk at the continuation of cherished (but clearly not mission-critical) perks or compensation for departing leaders. Or a hiccup or wobble in the economic outlook. All it takes is for one or more of these to manifest themselves, and it’s a shockingly easy path for selling shareholders to turn skeptical about the ability of the next generation to successfully pull off a transition and begin the exploration of an external sale, thus placing the internal transition at risk.

3. You’re not the boss of me: Not everyone is equipped or prepared for navigating the subtle yet meaningful shifts in the power dynamics of firm relationships during a transition. For the transition from one generation to the next to work, those who have been accustomed to providing direction must adjust their behavior to one seeking collaboration and/or consensus and ultimately end up looking for permission. It’s akin to voluntarily moving from the driver’s seat to the passenger seat to the way-way-back. It requires trust and patience. It takes a willingness to relinquish “the old ways” of interacting with those who were formerly “subordinates.” And it assumes that the next generation can do the job better. For some departing leaders it requires a lot of coaching and/or hand-holding.

What the next generation brings: 

1. Why change anything? Over the past decade, many next-generation leaders and shareholders have received real-time compensation that exceeds whatever they ever could have imagined when entering the profession. They’ve also seen dramatic increases in their equity positions in their firms. Times are good. They’ve experienced all of this without necessarily having any of the liabilities that go along with running the firm. Their names are not on the firm’s credit line or loans. Their houses or other property have not been used as collateral to secure financing. But as the transition heads into the “red zone” where the financial liabilities and risk are to be transferred to them from the current owners in addition to any notes to pay off those same departing shareholders, the next generation can get skittish.

2. Not my team: Many (most?) transitions require a group of next-generation shareholders and eager/willing leaders to demonstrate high levels of competency, loyalty, potential, and ambition to take over from the current leadership and senior shareholders. This provides the confidence needed by senior shareholders to proceed with the transition. However, there’s a big difference between individual eagerness and ambition versus collective eagerness and ambition. And how the next generation is organized is a major factor contributing to the success or failure of any transition. Throwing folks together and informing them that the firm is going to be transitioned to them without those folks having had the opportunity to develop trusting relationships with each other or test their team dynamic is a recipe for disaster. Bottom line: The next generation needs to not only collectively want to seize the opportunity to run the firm at the price offered by the selling shareholders, but they also need to want to do that together.

Any and all of these issues can be addressed successfully. What complicates matters is that they generally are all in play to some degree at the same time. It’s important to recognize these challenges will be in your transition’s future and get outside help where necessary. This is where good executive coaches really earn their fees.

You can reach Mick Morrissey @ 508.380.1868 or [email protected].