Innovation

W100: Leadership Succession - Surprise! You're in Charge Now

Written by Camilla Cornell

Teresa Spinelli took her first steps as a toddler down the pasta aisle of her family’s European foods store in Edmonton, worked as a cashier during junior high and moved into the office when she finished university. But in her traditional Italian family, there was no doubt that her brother Pietro would take over the business when her dad moved on.

Then, in 1996, Pietro died at the age of 32. “He had hepatitis C and he was waiting for a liver transplant,” says Spinelli, “but no one expected him to die. Until the very end, he was fine.” Six months later, her father was diagnosed with cancer; within four years, he, too, was gone — making Spinelli the reluctant captain of Italian Centre Shop Ltd. (No. 14 on the 2008 W100 ranking of Canada’s Top Women Entrepreneurs).

She initially struggled with the responsibility. She hadn’t been groomed or educated for the job, and she faced a host of difficulties. Staff didn’t want to take direction from a woman. Suppliers offered to call their wives to take her shopping during business trips. And rumours swirled that Spinelli would sell. “My middle name was Stress,” she says.

Unfortunately, Spinelli’s situation is all too common. Transitioning from one generation to the next can be rocky for any family business. It’s even worse if it comes about unexpectedly because of death or disability. Without a plan that outlines a smooth, orderly handover, your successor and company may face a host of challenges, including confusion, uncertainty, employee angst and even a potential business devaluation.

Here’s how three W100 CEOs survived the most common succession challenges. Heed their lessons to ensure the process of handing over the reins goes more smoothly at your company.

Challenge No. 1: The headless organization

Without a strong leader, entrepreneurial firms can flounder fast. And yet, according to a 2005 survey by the Canadian Federation of Independent Business, only 35% of business owners have a plan to exit their business. And of those, just 23% have a process to identify a successor.

That was the case at Aecometric Corp. (No. 18), a Richmond Hill, Ont.-based company that designs and builds industrial burners and related equipment. Founded by Jill Anderson and her husband Larry, Aecometric was initially run from the couple’s home. When it later moved to outside premises, Jill took a couple of years off with the kids before returning to work in the finance department. “Larry was the business,” says Anderson. “He was in charge of all the sales, was the general manager and everybody in the plant reported to him. He was pervasive.”

Then, in 1995, Larry had a massive stroke. Everyone, from clients to banks and employees, assumed the business would implode without him. The bulk of Aecometric’s employees, including managers, left the company and the bank pulled its line of credit. Sales plummeted from $5 million at their peak to $1 million in the year following Larry’s stroke.

How she beat it: Anderson considered selling, but when potential buyers lowballed, she dug in her heels. “My husband had worked so hard and given up his health for this business,” she says. “I was damned if I would let it go cheap.”

Telling herself that she could “break down later, when there was time,” Anderson focused on keeping Aecometric afloat. She hired a general manager who had worked in the automotive industry, but he had little knowledge about the market for industrial burners. Six months later, Anderson concluded that she could do a better job.

Anderson’s approach was to create a non-hierarchical team that jumped in and got the job done. “I didn’t make speeches,” she says. “I just put one foot in front of the other.” She plugged the holes in her management team by promoting talented employees who had skills she lacked in areas such as sales and marketing, and production. Then she filled the remaining gaps with graduate students and immigrants. The approach was born of necessity, says Anderson, since more senior people wouldn’t take a chance on a struggling firm. It proved to be a great strategy. The students were easy to train, and one Chinese employee ended up spearheading Aecometric’s sales efforts when it expanded to China.

Anderson also set a new tone for the firm — one that is “a little less entrepreneurial and a little more systematic.” The client list, technology and processes are now kept on paper or computers rather than being stored in a single person’s head. Today, a number of family members work in the business, including Anderson’s daughter Kelly, the operations manager. Anderson’s goal is to ensure that no one person is indispensable.

While she is still grappling with a formal succession plan, she says simply: “I think I have the people here who can carry on.”

Challenge No. 2: The sudden successor

Even when entrepreneurs identify their successor, few put a training plan in place. But targeted education and experience — outside or inside the business — can instill confidence in both the successor and other stakeholders, including staff, customers and suppliers.

Spinelli’s staff, many of whom had been with the Italian Centre since she was a kid, viewed her as “the little girl who used to play cashier” and questioned many of her decisions.

During negotiations, suppliers often ignored Spinelli, speaking instead to her buyers or to her husband. They became sticky about payment, too. “Sometimes they wouldn’t ship an order without the cheque first,” she says. Such reluctance to see her as a viable leader fed Spinelli’s own self-doubt: “I started thinking, ‘Maybe I’m not supposed to be here.'”

How she beat it: Upon deciding to remain in the chief executive’s role, Spinelli called the first-ever company-wide meeting and notified employees that she “was here to stay.” She also shared her vision of the future and killed rumours about an imminent sale. Not surprisingly, some employees disagreed with the changes she planned; a few quit, while others were fired.

Spinelli held firm against suppliers, too, telling distributors that if she was not treated as a “serious business owner,” she would take her business elsewhere.

Then she set about bolstering her leadership and managerial skills. While Spinelli knew retail, she lacked financial savvy. “I sat down,” she says, “and figured out how much money we had, where it was invested and how much it was making.” She enrolled in the Canadian Securities Course to get a grip on financial markets and how to read financial statements, joined a peer-mentoring group and attended business seminars.

Gaining the respect of employees took time. Working the store aisles helped Spinelli build relationships with, and earn the loyalty of, front-line employees. It also allowed her to identify top performers. Those employees have since found plenty of room for personal and career growth. In 2006, Italian Centre opened a second location and revenue has increased accordingly, from $10 million in 2000 to $26 million in 2008.

Challenge No. 3: Leadership tug-of-war

Too often entrepreneurial founders want to see their kids in leadership roles, but they have a tough time letting go. Just ask Shannon Bowen-Smed. In the 1980s, she began working as a receptionist for BOWEN Workforce Solutions Inc. (No. 11), the Calgary employment agency started by her mother, Laverne Bowen-Kruger. “But there was no intention for me to take over,” Bowen-Smed says. “I was a 20-year-old university dropout. I’m pretty sure my mom wasn’t saying, ‘That is exactly what this company needs!'”

Bowen-Smed found she loved the business, working in just about every department of the company. By 1992, Laverne was semi-retired but still held the position of president and CEO. After the general manager left, Bowen-Smed became GM by default. “It didn’t really mean much, except that I was getting more phone calls,” she says. “It wasn’t a conscious decision by my mom.”

Then, as Bowen-Smed’s confidence grew, she began taking the firm in a new direction. The rise of online job boards, such as Monster and Workopolis, reduced demand for the traditional recruitment services BOWEN provided. “To compete, we had to diversify services, create new sales and marketing strategies, and add technology to our business,” says Bowen-Smed. That was a huge shift in thinking for her mom, who resisted the changes.

Reluctant to wade through the leadership minefield, the two never discussed their differing visions, and mother and daughter increasingly found themselves at loggerheads. “I would make a decision that we were going to launch a website,” recalls Bowen-Smed, “and then she would refuse to approve the budget for it.”

The tug-of-war between the two women proved tough for BOWEN staff, who didn’t know which leader to heed. Turnover increased and the conflict spilled over into Laverne and Shannon’s personal relationship.

How she beat it: In 2003, feeling shackled, Bowen-Smed decided to take her skills elsewhere. “This is your company,” she told her mother. “I’m going to give you notice. If we continue like this, we are going to lose our connection as mother and daughter, and there is no business or job worth that.”

Bowen-Smed’s resignation was a wake-up call for her mother. After some soul-searching, Laverne acknowledged that Bowen-Smed had been doing a good job and it was time to allow her to run the firm. Laverne committed to changing her own role from “operator-from-afar” to chairperson, while Bowen-Smed, who had been president at the time of her resignation, added CEO to her title.

Bowen-Smed bent, too, acknowledging her mother’s need to stay informed. “This business is her retirement fund, so communication and involvement are the rules,” says Bowen-Smed. Together, the two came up with an agreement: Bowen-Smed would develop an annual business plan and a quarterly budget plan; Laverne would approve both, but leave day-to-day control to her daughter.

Now, if an issue arises, Laverne’s husband — a seasoned businessman — or an executive team member acts as advisor. But intermediaries are generally unnecessary. Now that Bowen-Smed feels acknowledged as the leader, she’s able to benefit from her mom’s knowledge, bouncing ideas and plans off her. The co-operative approach has been good for business, too. In six years, revenue has doubled to $30 million in 2007.

Says Bowen-Smed: “When you can get the chairman and president operating with a common vision, things improve.”

Originally appeared on PROFITguide.com