Corporate Governance Links
Management and Family Succession: Assuring Success for the Next Generation
“If you are planning for one year, grow rice. If you are planning for 20 years, grow trees. If you are planning for centuries, grow men.”-Chinese proverb
The singular, most essential prerequisite for all successful companies, be they multinational, publicly traded corporations or local, family owned businesses, is the existence of great leadership, great CEO’s. It is their vision, dynamic energy, passionate tenacity and singular focus that is capable of transforming the static amalgam of tangible and intangible assets and support personnel into a productive and unique economic force. Without them, there is only a gathering of fungible, albeit important, parts that, perhaps with effort, may be found or changed and added to or deleted from the mix as may be necessary or desirable.
|The law characterizes corporations as “unnatural persons.” Most lawyers will tell you that one aspect of this “unnaturalness” is that, at least theoretically, corporations have “unlimited life.” Yet it would certainly be more precise to state that they have “unlimited existence;” for, clearly, absent the people who cause them to do things, they have no life at all.
This distinction is far more important than might first appear: for while man might imbue his creation of the concept of the corporation with a type of “unlimited life,” he cannot do that with his own existence. Hence, if it is the desire of a founder to have his creation benefit future generations so that “his” company may truly live beyond him, he must necessarily begin to examine the nature of his enterprise and his role within it, so that he may not only leave his company in the hands of “great leadership, great CEO’s,” but also so that by establishing an institutional framework that provides for and requires competent management succession, the founder can establish a tradition of continuity of excellence than can be passed on from generation to generation.
For nearly all entrepreneurs, this personal transformation from “founder” to “ancestor” is the most difficult. For it is complicated not only by their lack of skill, training and experience with such matters, but by their safety in the knowledge and comfort of their own essential spark that made the business what is has become, and by the myriad of personal and family issues, personalities, jealousies, and conflicts that often cloud and distract from the need to make a pure “business decision.” Yet leaders can lead only by example. Legacies will follow only from what may or may not have been done; not from words or wishes left behind on yellowed paper on file in some lawyer’s office.
Where to Begin
The answer, as is always the case, is the result of the application of a methodological process that seeks understanding of the company’s, history, products, human capital assets, other capital assets, the existing internal and external environments and the challenges at hand. It is the result of a focus on “means” rather than “ends.” As Francis Bacon observed almost 500 years ago, “If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts, he shall end in certainties.”
Once our people have such an integrated, holistic view of the enterprise, we continue by narrowing the options available to satisfy all essential stakeholders whose interests need to be addressed by the founder. Utilizing tools of what Richard Wise refers to as the “New Diplomacy,” they seek to win the hearts and minds of all involved and to create the dynamic energy that is requisite not only to achieving the short-term goal, but also to achieving the client’s goal of a long-term, sustainable enterprise. Indeed, for problems such as these, there are rarely “out of the box” solutions, and Mr Wise takes advantage of his extensive experience and training to look at problems both globally and in a non-linear fashion so as to find creative, new solutions to deal with each company’s unique problems that would elude those adhering only to traditional “textbook” responses.
Legal Structures, Sensitive to Human and Business Needs
The result of the process is two fold. First, the source of succession, whether from within or without the organization, is derived with sensitivity to the human element, including the need to apply safeguard mechanisms that empower all necessary stakeholders lest any group feel disenfranchised. Second, new changes and policies are institutionalized through the designing of constituent charters and appointing independent advisors to buffer family disputes, to keep the enterprise grounded in choosing objective, business goals over personal predilections, and to assure the replication of such decision-making processes, including the key succession decision process, for future generations.
“By creating a corporate culture dedicated to competence, integrity and transparency,” Mr Wise observes, “the enterprise can prosper and guaranty the highest return to future owners. To do this, mechanisms must be ingrained in the company that result only in the best possible team of men and women being assembled. As Niccolo Machiavelli was fond of saying, ‘The first method for estimating the intelligence of a ruler is to look at the men he has around him.’ Second rate people hire only third rate people. This is because those with ability greater than their own are viewed as a threat. Yet ultimately, the choice of lesser leader must result in the creation of a lesser company. And in any highly competitive environment, such a choice can only lead to eventual failure.”