Who Makes the Decisions?

May 01, 2012

In our last article, we saw that at the core of a successful business transition is the more subtle transition of leadership. A key component of developing that leadership is giving the authority to act.

Cathy Penmaen has worked for her father, Thom, for over twenty years and would like to one day take over when Dad retires. However she feels that Thom, who is now 65, isn’t grooming anyone at all for that role. According to Cathy, Thom is a control freak who has to be in charge of every aspect of this business he has built.

“I have the title of VP of Marketing but I really don’t have any say in what goes on around here,” bemoans Cathy.

Like many family business leaders, Thom doesn’t advertise the authority that his team needs to meet their responsibilities. He just expects it to happen. If you were to ask Thom why Cathy doesn’t have any authority, he would likely be very confused by your question and surprised to hear that Cathy felt that way.

Likely Thom doesn’t realize that not only is Cathy unequipped to play the VP role she has today, she is losing any motivation to prepare for a future leadership role. The way things are going, it’s highly probable that Thom will systematically delay his exit because Cathy doesn’t meet his expectations of a leader.

Many family businesses in transition have a Thom and a Cathy. There is a founder whose whole identity is linked to the business and a Cathy who is chomping at the bit to take over. To enable the business to flourish going forward, business families need to go beyond the family ties – i.e. the history and relationships that define them. They need to concentrate on bringing structure to how they own and run the business. They need to formalize the process for delegating not only responsibility and accountability, but also the authority.

Below are some points in understanding the importance of assigning authority, and its role in enabling a successful transition to the next generation.

  1. Inventory the decision-making
    Often, junior family members believe that one person makes all the decisions and that no one else has any authority. The first step is to check the facts actually take inventory of who decides what. Like Thom Penmaen and his family, you might be very surprised at the results. Thom has 150 employees so it’s impossible to make every decision himself. Doing an inventory of “what decisions are made and by whom” is an essential first step towards understanding what the delegation of authority means in practical terms.

  2. Grow Wisdom
    The reluctance by many entrepreneurs to give up control frequently stems from their need to ensure sound decisions are made. As no one can live forever, holding onto control is not the solution. Instead, entrepreneurs like Thom need to actively seek out ways to impart their life experiences and wisdom to the next generation leadership and at the same time afford them the opportunity to develop their own ability to judge correctly and follow the best course of action.

    Thom needs to understand that development of this wisdom requires not only the passage of time, but also the opportunity for the next generation to garner context and experience.

  3. Communicate
    Many entrepreneurs are entirely focused on what will grow the business and assume that everyone else is on the same page. Like Thom, they fail to signal their intentions and wait until the last possible minute to change lanes. This leaves Cathy and others wondering if they will ever get to drive in the fast lane and whether or not they should take a different highway.

More can be accomplished in a business when all members of the management team are on the same track and roles and responsibilities are clear.

When people see how their role in the company contributes to the overall vision for the business, and they are given the authority to make decisions to carry out their specific responsibilities, they feel empowered. These are the people who wake up every morning thinking about their role and what they can do to contribute more to the organization’s success.

An ARA, a document that details the Authority, Responsibility and Accountability of the key people, is very effective in not only creating that motivation, but also in aligning the roles within the business to ensure that all responsibilities are delegated and there is no overlap. An ARA clearly sets out the targets that each person needs to meet. It also details the accountability that goes along with that role and quantifies the level of authority that each person can exercise. Collectively, these ARA’s link the strategies of the business to the tactical Operations, Marketing and Financial plans.

Avoiding the delegation of authority because the current leader feels it will result in a loss of control is absolutely the wrong strategy for a future-focused organization. The key to building a business that can survive under next generation leadership is a gradual changing of roles. And the common thread in making that shift successful is communication.

If you would like some guidance in how to gradually transition authority to the next generation leadership, contact your personal BDO advisor or call our Business Transition Services team at 1.800.598.6400.

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