02 / 2002

Succession Management:
Why do so many companies fail?
How can Coaching benefit?

by Claudia Nuber

About 700,000 small and medium sized companies in Germany face the issue of succession.

Of the 76,000 company transfers in 1999, approximately 50 per cent were transitioned within the family, five per cent were the result of a management buy out (takeover by existing management), 15 percent were moved to external executives and 20 per cent were purchased by another company. The remaining 10 per cent, unable to locate a successor, were dissolved. And this, despite the professional services of lawyers, consultants and tax accountants. Professional services which largely disregard the emotional context of the entrepreneur and their family. According to statistics, only 20 per cent of company transfers fail due to technical or objective matters, whereas 80 per cent flounder because of personal and emotional problems. When the founder of a company --- a company they shaped and directed for many decades and one which also shaped and molded them --- has to retreat, this drastic move has a far-reaching impact on all their surroundings, not least their own family. Personal misunderstandings and faulty assumptions are the most frequent roadblock to a successful transfer and result in considerable costs to the company and its employees.

Preventing "internal resignation"
Employees are a company's most valuable and most fragile resource. Absenteeism and fluctuating performance create unnecessarily high costs. However these pale in comparison to the costs associated with employees who have already 'internally resigned'. Every employee, who possesses essential subject matter knowledge and technical expertise, is then summarily lost to the company. And yet, particularly during a company transition, a successor counts on this vital know-how and its availability.
The transfer of one's company to a successor - regardless whether this is internal, to someone within the family, or external - can often be very challenging. One needs to find a successor who is both capable and motivated to effectively run the company. However, technical expertise alone does not suffice. Personal and subjective factors, such as the founder's confidence in the capabilities of the successor, as well as certainty that the corporate challenges will be successfully addressed, also play a large role. The former owner needs to let go, internally as well as externally, in order to give the successor a genuine chance. These emotional struggles, which impact every process and decision in the transfer, necessitate a external guidance that is both neutral and objective, and ensures that the venture is not doomed to failure.

Sensitivity is crucial 
Why does a founder have to hand-over their life's accomplishment to someone else? For one, illness and death. This is why the family and company's security must take highest priority from the moment one chooses to be an entrepreneur. "All men are mortal"- this knowledge arouses feelings of uneasiness and fear. Feelings which one rarely can or wants to discuss with family or friends. However, the torment of dealing with this in solitude inevitability derails the attention and energy much needed for the fulfillment of current work and family demands. Secondly, we are now living in a period of unprecedented change. This unparalleled speed and breadth of change is affecting traditional business practices as well as leadership styles. Each entrepreneur must therefore ask themselves whether, given the inevitable changes in five to ten years, they will be capable of effectively adapting and managing their enterprise.

Alternative: Coach
In order to constructively deal with these issues, a Coach can offer the (neutral and objective) platform for meaningful exchange and reflection. The professional services of a Coach are increasingly being relied upon by companies seeking an orderly succession and transfer of power. The Coach supports the founder by raising the following issues for consideration:

• What are the competencies and abilities needed to lead my company successfully into the future?
• What is my image of the ideal successor?
• For family-run companies: Can I objectively assess my children's capacities?
• What is the optimal point in time for an orderly transition?
• How and for how long will I train my successor?
• I am really prepared to release and hand over my life's work?
• What is my personal motivation to step aside?
• How will my life look without the company?
• What potential problems should I anticipate and how will I address them meaningfully and constructively?

Likewise, personal coaching facilitates the successor's entry and acquisition of the company through questions on the following topics:

• What challenges must I face as a successor?
• Do I really want (and am I ready) to accept them?
• What is my personal cost/benefit analysis (spare time, family, status, personal fulfillment)
• What are my goals for the company?
• How do I organize the company for success in the future?
• Can I truly realize my goals and objectives?
• What resources are at my disposal?
• How would I deal with the former founder who may not want to or cannot let go?

These questions reflect only a fraction of the areas addressed in Coaching which would tailor the issues for consideration based on the specific situation and the individual needs.
The Coach accompanies the company's transition process (in addition to the lawyer, the tax counsel etc.), as a neutral, objective and non-judging observer, serving predominantly as a moderator. Particularly in family businesses, the Coach ensures that the necessary communications channels are in place to resolve conflict situations and allow open, clear and constructive discussions.

Not a universal remedy 
Despite the benefits above, coaching is not a universal remedy. One cannot engage a Coach with the notion that "the Coach will fix it all". Coaching is based on a mutual bond of trust and respect, in which the Coach offers up a crystal-clear (undistorted) mirror, such that one can see an objective reflection. Since the title "Coach" is neither academically conferred nor does it currently require training or certification, caution is urged in the selection of a Coach. Below are the basic considerations in your selection:

Does my Coach understand the business context? What experience does the Coach have with company founders and entrepreneurs?
What special training does my Coach have? Is the Coach's practice supplemented by training in Coaching, Social Work, or Psychology? (What do I need?)
Is my Coach a good match and on par with me? Or is my Coach simply a 'Yes person'?
Does my Coach lead me to new ideas and perspectives?
Does my Coach understand me and my values?
Is my Coach loyal and discrete?
Do I trust this person? Do I feel comfortable in their presence?

Be alert and cautious if:

The Coach knows and has experienced everything already.
The Coach judges an approach without being asked to.
The Coach pulls rank and hierarchy.
The Coach always agrees with you.
The Coach gives you unsolicited solutions.
The Coach does not facilitate the integration of your business and private life.
The Coach has an openly published clients list despite claiming to offer confidentiality.

Without confidentiality and an assurance that one's privacy is protected, and that the subjects discussed are held as privileged communication, the process of Coaching can not function effectively. It is therefore advisable to have a legally binding Confidentiality Agreement. One should also have the option of a free introductory session with the Coach. In fact, any reputable Coach will extend two or three pro bono sessions in order to ensure comfort and trust prior to formalizing a contract. Coaching is one of the key pillars for the successful transition in a company and it is thus vitally important that services of the typically engaged advisors, noted earlier, are enhanced through the professional expertise of a Coach.