Succession: The hardest part is letting go

Part two: Board

This is part of a three-part series on succession — covering family, boards, and CEOs — and while each part stands on its own, they’re best read in order. Read Part One here.

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The seats around the table decide the story

Over the years, I’ve sat around a lot of board tables — family businesses, SMEs, widely held companies — and watched governance play out in very different ways. Some boards ran like clockwork for decades. Others fractured under the weight of mistrust, ego, or timing. The stories below are drawn from that experience, anonymised but real.

Twenty years of calm – and the reason why

A large-scale company, owned by four families for over twenty years, has maintained at least one independent director throughout. In the last two years, there has been one new family appointment and one new independent director appointment.

Three independent directors have served over the company’s 20-year history, and they have all been selected from their connections and relationships with one or more of the shareholders — all exceptional. The board is  generally stable, with high levels of trust, connectivity, and alignment.

When the only thing you agree on is to sell

Two shareholding groups jointly owned a company, and each group had its own stakeholders. At a shareholder level, the two groups were  in conflict. One group changed its board representatives three times, generating varying degrees of internal mayhem inside a business of considerable scale.

The only thing that they could agree on was that the business must be sold. In the meantime, they continued to sit together around the board table with high levels of distrust and discomfort.

A chair of one, and why it worked

This was a typical SME, with four working proprietors who were owners, board members and senior executives. It had recently replaced its independent chair. Both the previous and current chair came from the network of one of the shareholder directors. They had both been successful in the chair role, despite being a minority of one within an executive board. This group had high levels of mutual trust and respect for one another, and a strong sense of belief in the purpose of the business.

When the best practice still leaves everyone uneasy

This was a widely held but private company with high levels of board churn. The founders did not have formal appointment rights, but they acted together with a group of investors to effectively exercise them. The company had an independent chair, but that role transitioned to an investor director serving as chair.

Following a disagreement between the investor group and the founders, a new independent chair had been appointed. Shareholders, including some of the founders and investors, were generally uncomfortable with the appointment, even though a full deck, best practice, recruitment process was followed. The founders and the investors had also changed their respective director appointments.

Musical chairs around the board table

This was a company with two shareholders: a majority shareholder holding over 75%, and a minor shareholder who was the CEO. Each had appointment rights to the board (2 for the 75%, one for the 25%), and a majority of shareholders appointed the independent. The first independent lasted twenty years in the role, but did so by gently drifting over time to a pattern of siding with the major shareholder.

The minority shareholder then subbed himself out and put an independent in his place. The major shareholder and the new appointee didn’t get along, and the major shareholder, too, replaced himself with an independent. The seats on the bus changed as each shareholder played board seats in an economic and emotional game. The company drifted downward in economic performance as this battle of wills played out.

What the board stories taught me

1. Prioritise diversity in thought. Look for shared values as thoroughly as possible, so that you can achieve alignment and performance faster.
2. It won’t always work, it never does. But governed companies with independence around the table seem to perform better at this critical point in the story.
3. Make sure you can articulate your greater good, purpose, or shared value that binds you. If you can’t, achieving alignment is hard.
4. Understand your business or family. Be authentic and ensure communication is clear in both directions. Speak, and listen. You might not like what you hear, so adapt.
5. Succession is a time of change, and it’s underpinned by intense human emotions. When managing succession, the emotions drive success more than the rational mind and other business decisions.
6. If human relationships are strong, even in crisis and conflict, there is less trauma.
7. Trust, loyalty, and selflessness for the greater good make everything easier.
8. Don’t leave it for later. If you do, you may struggle to find someone who really wants the opportunity, or the opportunity itself could become unappealing.
9. Another good thing to remind yourself is that you will only “know” others if you “know yourself”.

So, forget those who say, “trust the process”, and remember to “trust the people.” If you have, they are your people, why wouldn’t you place your trust in them, and respect why they join or leave? It’s hard, I know, to fight this feeling, and the sense of betrayal that sometimes permeates at times of change.

What the board really comes down to

The boards that came through this well weren’t the ones with the best processes. They were the ones with the right people, and enough trust in each other to disagree without blowing the thing up. Independence helps. Structure helps. But neither saves you if the people around the table don’t share something bigger than their own seat. Get the people right and the rest is manageable. Get them wrong and no governance framework will hold it together.

Coming up in Part Three: the CEO

All of which leads to the seat everyone in the room is really watching: the CEOs. In Part Three, I’ll tell five stories of leaders handing over — or refusing to — and then I’ll tell my own. I’ve just been through it myself, and I can promise you the theory doesn’t prepare you for it.

We’re with you, every step of the way

Succession isn’t something that can be sort out overnight. It’s a decision that requires time, and conversations that aren’t rushed. If any of this sounds familiar, or you’re just not sure where to start, let’s chat. Get in touch with our team, and we’ll help you map out a succession plan that protects what you’ve built and sets the next chapter up properly.

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Disclaimer: This article is written by Bruce Sheppard in a personal capacity. It does not constitute financial advice, and he is not a licensed financial adviser. Please seek independent financial advice before making any investment decisions.