Business Transition Consulting LLC

The number one mistake of the Top Five Mistakes Preventing Business Owners From Realizing Maximum Value is the failure to implement a system of making wise decisions both in the business and family arenas. This process – the system of making and documenting wise decisions – is called planning.

To make the best decision-making process in the business succession planning process, a small group of diversely informed individuals should aggregate their judgments. This process of decision-making should include the elements of diversity, independence, and decentralization. Is this group the owners? Can the meeting be the way the judgments are aggregated?

This inquiry can be best answered by an examination of what occurs at most owners’ meetings. Generally there is a dominant or majority owner, who will preside at the meeting. There may or may not be a written agenda, but the dominant owner will control the topics discussed. The purpose of the meeting will be stated to make a decision on a certain topic. This topic will be discussed at the meeting with the dominant owner’s opinion stated. There may be discussion and dissent but at some point the dominant owner will state something like, “I think we are all on the same page,” and the meeting will conclude. Some might call this consensus decision-making, in that at the end of the meeting no expressed opposition existed to the action taken. It is often the case that the dominant owner used the meeting not as a part of the decision-making process, but to communicate the decision that the dominant owner had already made unilaterally. The danger of making a decision at a meeting is that the polling of the hopefully diverse, independent and decentralized individuals may be flawed. To say it another way, the means by which information is received from the group members may be influenced by the method of collection of information – the meeting environment.

At a meeting a number of dynamics are present. Participants in a meeting are affected by the appearance of other parties, their placement in the room, their physical state at the time of the meaning, their own personality traits (for example, being extroverted or introverted), and their individual skill in orally articulating thoughts on a subject. Individuals do not have the same capacity to absorb oral information, and the failure to document thoughts in a written format often indicates a less than thorough thinking process.

In certain circumstances, a meeting is appropriately used as a formal method of polling – the vote counting process. In the business ownership setting, if the plan is not fully supported by all of the owners, its viability will be in question. This suggests that in the business succession planning procedure polling (aggregating judgments) should be done informally and outside any meeting.

Ignoring for a moment the concerns of the meeting format, the compelling question is what process can be envisioned for the owners’ group to make the best decisions possible? The constituency of the group is fixed to the owners. With this group it is necessary to stress that the factors of diversity, independence, and decentralization are valued. A reporter can carefully poll this group to encourage diverse, independent, and unique thoughts on the decision to be made, and document these thoughts in writing. Before any meeting occurs a summary of the thinking should be circulated to all owners. This summary need not attribute the thinking or make a conclusion about the thoughts expressed. The owners should be encouraged to discuss the summary with the other owners and begin to formulate their own positions in accordance with their values and the information derived from the other owners.

From this summary and the discussions, a draft plan document can be created. After this document has been reviewed, the areas of disagreement among the owners will be understood. At this point, a direct group discussion may be helpful, and the proper forum for this discussion may be a meeting. This meeting will be a critical, and probably difficult, conversation, and the skills each owner develops in having critical conversations will be helpful in the conduct of the meeting.

The succession plan may be viewed as a series of decisions. These decisions are best made by the owners exhibiting diversity, independence, and decentralization and articulating solutions to planning problems in accordance with each owner’s personal values. If each owner has taken the time to define and articulate that owner’s personal values and then applies those values to determine solutions to planning problems in writing, and then applies the principles of critical conversations to engage the other owners in dialogue concerning their solutions, the best decisions will be made to create the succession plan.

The well advised family-owned business has two areas of governance, one for the business and one for the family. For example, the family might have a family council and the business might have a holding company. The boundaries for these areas of governance need to be established and respected. The governance of the business must involve appropriate selection of personnel based on merit (not relationship to the family) and the culture of the company. The strategic and operating plans for the business must deal with the culture of the business and the process of authority and delegation. As appropriately selected managers come into the business, the planning cycle (analysis, written plan including actions, implementation, and analysis) should continue and involve these new managers. Frequently the issues of control, delegation, and trust are at the forefront. The creation of a written plan containing wise decisions evolved from polling a group of diversely informed individuals (including those new managers) is the best way to deal with these issues.