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Supporting Succession Planning: The Role of the CFO

Supporting Succession Planning: The Role of the CFO. Presented To CFMA November 7, 2013 By John Hughes, M.A. President, Ollum Consulting, LLC. Succession is a process, not an event!. Succession is a process for balancing continuity and adaptation.

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Supporting Succession Planning: The Role of the CFO

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  1. Supporting Succession Planning: The Role of the CFO Presented To CFMA November 7, 2013 By John Hughes, M.A. President, Ollum Consulting, LLC

  2. Succession is a process, not an event! • Succession is a process for balancing continuity and adaptation. • Succession as process is part of a strategic perspective on the organization, it’s leaders and its people. • Succession is a learning based growth process for both individuals, teams and organizations. • Effective succession processes are systemic rather than linear. • Continuity of leadership is important to all organizations.

  3. Talking with the owner/leader about succession • How long do they want to work? • When do they want to scale back their time commitment? • What do they want for the future? • For self? • For the company? • For the employees? • For owners? • For the family? • What plans do they already have?

  4. Stages of a Closely Held Business Maturity Start-Up Expansion/Formalization (Driven by what's best for the business) (Tension) (Driven by personal goals) • Market-Driven StrategicPlanning • Goal Setting • Structure & Systems • Accountability/Reward • Management Developmentand Team Building • Outside Expertise • Financial Discipline • Structure and Accountability • Entrepreneurial/Managerial Tension • Intuitive/Opportunistic Direction • Hard Work • Trial and Error • "Jack of all Trades" • "One Man Band" (Business more organized but experienced as being "like a family") (Leaders and Managers conform to the business) (Business designed around the leader)

  5. Multiple Succession/ Transition Processes • Ownership • Leadership • Governance • Family

  6. Leadership Succession • How will the next CEO be selected? • Will the person be family or non-family? Internal or external? • How will candidates be developed? • What role will current leader take? • What will the transition look like? • Does the leadership structure need to change? What roles do not have successors in place? • How deep is your leadership pipeline? • How good is the company at developing leaders?

  7. Ownership Transition • Family • How will ownership be transferred? • How will shares be distributed or ownership designed? (active vs inactive stockholder) • How will shareholders be trained? • Do you have a shareholder agreement?

  8. Ownership Transition • Non Family • How will current owner bought out and by when? • How are shares valued? • How are shares acquired? • How will shareholders be trained?

  9. Ownership Plan • Promotion of Business Continuity • Income for Senior Generation • Equitable Treatment of all Heirs • Tax and Financial Considerations • Family Awareness

  10. OWNERSHIP OPTIONS: • Active Shareholders Only • Active and Non-Active Shareholders • Non-Active Shareholders Only • Sale of the Business

  11. Governance Transition • Transition to a professional board or advisory board • How will Shareholders be represented? (family/non-family) • How can the board support the transition? • Help founder/owner maintain appropriate role and boundaries. • Help manage the business and the new leader. • Support the development of the new leader • Oversee strategy

  12. Corporate Decision-Making Structure • Elect directors • Approve sale of the business • Approve recapitalization and issuance of shares Shareholders(Ownership) • Select Chief Executive Officer • Set policy (not day-to-day operations) • Approve plans and budgets • Hold management accountable Directors (Governance) • Develop and propose plans • Implement Board policy and plans • Oversee day-to-day operations Management (Leader & Managers) • Carry out assigned tasks Employee

  13. Family Planning • Estate Plan • Preserve Wealth • Transfer Wealth to Heirs • Philanthropy • Minimize Taxes

  14. Mission, Purpose, Strategy and Values • Family must redefine the purpose of the business and its relationship to the family. • Mission and values should be revisited and updated if needed. • Strategy should integrate the goals of the outgoing and incoming leaders. • Strategy should overlap the transition.

  15. Succession Derailers • No plan • Current owner/leader not able to let go. • Next generation of leaders not prepared. • Ownership transfer not plausible/no way to buy out owner. • Family Dynamics • Tyranny of the urgent over the important • Homeostatic Cultural Forces • Singularity of Perspective • Not knowing what we don’t know

  16. Family Dynamics

  17. Family/Business Overlap Family Business Emotion Based Loyalty & Belonging Continuity & Harmony Task-Based Competence & Commitment Growth & Change

  18. Family Business Family/Business Overlap Functional

  19. Family Business Family/Business Overlap Disruptive

  20. Family/Business Roles Decision making Money Information Interactions Family Employee Employee Family Family Owner Employee Family Owner Employee Owner Owner

  21. REACTIVE RESPONSIVE GENERATIVE INTENTIONAL DIFFERENTIATE DIFFERENTIATE DIFFERENTIATE COUSIN to COUSIN SIBLING to SIBLING PARENTtoCHILD SIBLINGtoSIBLING PARENT to CHILD PARENTto CHILD LEADERSHIP/OWNERSHIP SUCCESSION DIFFERENTIATE DIFFERENTIATE DIFFERENTIATE BUSINESS/FAMILY BUSINESS/FAMILIES BUSINESS/FAMILIES Roles Mission Strategy Values Roles Mission Strategy Values Board Culture Leadership Development FC Culture Constitution Leadership Development Personal Meaning Senseof Belonging Business & Financial Acumen

  22. Stages of "Letting Go" Delegator/ Overseer Manager Operator (No Role) Consultant Leader Senior Generation Younger Generation Monarch Helper (Prof. Wendy Handler, BabsonCollege)

  23. Evolution of Succession Planning Across Business Strategies Start-up Entrepreneurial Managerial Professionally Managed Starting Growing Maturing Renewing • Immediate Needs • Single Position • Crisis Management • Reactive • Strategic Focus • Active, On-Going Process • Pivotal Talent Pools at All Levels • Leadership & Organization Development • Generative • Long Term Needs • Key Leadership Roles/Pools • Talent Reviews • Development Plans • Responsible • Short Term Needs • Critical Positions • Risk Management • Responsive Back of Replacement Succession Succession Napkin Planning Planning Management

  24. Thank You! John Hughes, Ollum Consulting, LLC jhughes@ollumconsulting.com 763-432-2306

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