Mature Man Contemplating Industrial

Leadership succession can be one of the riskiest times for a business. A healthy culture of empowerment and accountability can help mitigate that risk and ensure a smoother transition.

Preparing for transition

Culture Is a Critical Part of M&D Leadership Succession Planning and Preparation

  • Brad Baumann
  • 1/25/2016

Many people on the brink of retirement from manufacturing and distribution companies have been on the payrolls for decades. We’re talking 30 to 40 years at the same company, in the same department, with intimate knowledge of the company’s history, its customers, its industry, its subindustries… So much invaluable information is warehoused in these individuals’ minds, and they are on their way out of business and into retirement. Where will all this information go? Who will pick up where they leave off? 

Recently, I spent some time with my father reflecting on his upcoming retirement from his employer after 40 years leading its sales department. I was talking to him about his career and what is next for the company he was so dedicated to. He told me, with great emotion, that he had real concerns about its future. Joining him in retirement now or very soon are a 38-year sales veteran, a 30-year head of parts, a 30-year head of service, a 30-year logistics manager, and a 35-year office manager. That’s more than 200 years of company and industry experience heading for the exits! And this great departure of knowledge is complicated by the owner’s age (over 70) and the absence of any kind of succession plan. My dad worries that the legacy that he, his colleagues, and the company’s owner labored so long to build might not last in the end. 

Transition comes for everyone — but not everyone is prepared  

Unfortunately, this is an all too common scenario in many manufacturing and distribution businesses. Baby Boomers are leaving employment in large numbers; their time for retirement has come. The case of my dad’s company may be on the extreme side, but the overriding issue is not: how do business owners replace key leaders (and capture their expertise) who will be walking out their doors in the next few years? 

By preparing for it, of course. And preparation starts with an acknowledgement of certain inevitabilities. Whether they are Baby Boomers or Xers or Millennials, one generation will always yield to the next. Succession will always be a factor for any business that wants to endure, and succession can be a risky prospect. 

In our practice, we encourage business owners and leaders to square with the reality that one day they will indeed exit the business, and they can’t prepare for that eventuality soon enough. They don’t have to know for sure what that exit will look like (sale, transition to family, etc.), but they must begin crafting a succession plan that allows for a host of possibilities. Equally as important to the logistical plan is culture. Owners and leaders are wise to nurture a culture of empowerment and accountability to develop the next generation of leaders and ensure the baton is handed off smoothly.

Is “somewhat prepared” enough?

Sixty-six percent of our respondents anticipate leadership transitions within the next 10 years, and 51 percent say they are “somewhat prepared” for this momentous change

In reality, though, manufacturing and distribution leaders tend to get distracted by the challenges at hand and reserve succession planning and culture-building for another time. That’s completely understandable; cost pressures, workforce development, cash flow management — who has the time to look so far down the road when today’s urgencies are blocking the view?

But for many, that point down the road isn’t as far away as it may appear. In CLA’s most recent survey of manufacturing and distribution businesses (complete report coming soon), 66 percent of our respondents anticipate leadership transitions within the next ten years, and 51 percent say they are “somewhat prepared” for this momentous change. (Twenty-three percent are “somewhat unprepared,” and 6 percent are “very unprepared,” not unlike my dad’s company.) Being “somewhat prepared” is a good start, but will it be enough to manage such a time of risk and uncertainty?

Culture can make or break a leadership transition 

Recently, I had a conversation with some of the members of a local company’s new management team. They said their primary hurdle to success was a longstanding culture of blame and lack of accountability. The engineering, sales, and production departments all pointed fingers at each other, leaving critical service and quality issues unresolved. Deadlines were often missed, and actuals fell short of goals — and still no one was held accountable. The company’s president was content to look the other way (as long as his “margin” was hit) and wouldn’t extend authority to his new management team to reshape the environment and change behavior. Here were several fresh, high caliber leaders who were rendered helpless by a debilitating culture. Do you think they’ll stick around much longer, or will they look for other places to put their talents to use? Won’t these unresolved service and quality issues eventually sour their customers to the company? Will revenues and profits take a hit — and ultimately the company’s value?

Our most recent survey also checked in on culture. Only 40 percent of respondents say they are developing a culture centered primarily on employee growth, which is an indicator of a healthy, people-focused environment and one that will generally accommodate leadership changes more successfully. Don’t underestimate the importance of the right culture and how it can help minimize risk as ownership and leadership transitions loom on the horizon.

Some of the most vivid examples of culture and leadership reside in college sports. Duke coach Mike Krzyzewski is an excellent leader who instills personal accountability and an impressive work ethic (Duke’s culture) in all his players, even those who don’t start or see any court action at all. Any Wisconsin Badger fan is painfully aware of this. Remember the 2015 NCAA national championship game, when Duke freshman Grayson Allen came off the bench and added 16 points to the scoreboard — and, more important, inspired his team to pick up its performance and beat the Badgers for the national title? Allen wasn’t a star player (he barely saw nine minutes per game), but he had the wherewithal to lead by inspiring others. Coach K’s culture makes that possible.

And when you consider the element of succession in college sports (constant changing of team leaders as players graduate and are replaced by new recruits), this example is even more relevant. It helps illustrate the intangible aspects of real leadership and its influence on people for the better. Succession can be one of the riskiest times for a business. Having a strong culture can help mitigate that risk.

How we can help

No matter where you are in the process, CLA’s manufacturing and distribution industry professionals can help you develop a succession plan that includes a strong culture component and satisfies your key stakeholders, provides for seamless leadership change, helps the business continue to thrive, and preserves your legacy.