Eliciting Excellence

Two Children. One Successor. Now What?…

It’s a challenging scenario. An owner has two children (or two executives) who each want to run the company after you retire and, of course, each child feels they are best equipped (or most deserving) to run the company. But there can only be one person at the top. (Having co-presidents or 50/50 owners can be a disaster.) Additionally, it’s important that the company and its cash flow continue to grow, since in most cases the price/value of the business will be paid out over time. And finally, besides needing the company to thrive, the issue of family dynamics comes into play. Because of these issues, it’s essential to get this decision right and to handle the implementation effectively. Choosing one over the other, if not handled properly, will surely lead to hurt feelings, resentment, and tense holiday dinners. Here are the four ways to resolve this situation…

1. Let Them Sort it Out Themselves
Allowing them to resolve who should be in charge may seem like the smart approach because you (and your spouse) don’t have to take sides, thereby avoiding any resentment towards you. But it doesn’t work that way and you run the risk of the business failing.

Although it may seem like you’d avoid resentment, the child who “loses out” will likely resent the fact that you didn’t believe in them enough to choose them over their sibling.

And though it may seem like it should be an issue of “survival of the fittest”, it may very well be survival of the most hurtful, most manipulative, or strongest willed – none of which ensure that he or she has the vision and leadership qualities needed.

All in all, this approach is not very effective.

2. Choose One Over the Other
This can be the best solution if it’s handled correctly. If you can be objective about who should run the company, not only will you maximize the likelihood that the business will thrive, but you’ll effectively make the case for your decision.

This approach starts with an objective assessment of each person’s leadership competencies. The assessment will provide good insight into how each leader is viewed by those around them. In addition to the assessment, you should have each of them express their vision for the company going forward. Asking for their vision of the future will help you determine whether they have good judgment and if they’ve been giving thought to growing the company. Once those pieces are completed, it is often self-evident who the stronger succession candidate is.

Sometimes the person you’ll pick will be ready to take the reins right now, but many times, they will still need further development to be most effective. Either way, it is generally fairly straightforward to make the case for your decision in a dispassionate, objective manner, thereby minimizing any feelings of resentment. And you’ll have chosen the one most likely to succeed.

3. Split Responsibilities Between the Two
This approach is a variation of the second approach and can also be a good one if the siblings aren’t battling one another. Sharing responsibilities based on their respective strengths can be a smart strategy. The only problem is that ultimately, there needs to be one decision maker. This approach will still require you to choose which child has final say, so you’ll still have to name one as the person in charge.

4. Sell the Business to an Outside Party
Selling your company to a third party ensures that you get paid the full value of your business. It avoids having to choose between two children and it may sidestep feelings of resentment.

There are, however, two potential issues with this approach. One is that there may still be feelings of resentment about not having confidence in one or the other of them to have selected them as successor. The other issue, of course, is that the business will no longer be in the family and your legacy will be lost.

In summary, the best way to handle the situation of having two or more potential successors is to make (and justify) your decision as objectively as possible. Following this strategy will minimize feelings of resentment and maximize the likelihood that the business will thrive, you get paid the full value for the business, and your legacy continues.