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Succession Planning Without Family Successors:
Moving Toward a Professionally Managed Firm

The construction industry has a long history of firms being passed successfully from one generation to the next and even into the third generation. As construction firms become larger and with the multitude of opportunities that are available to the children of successful entrepreneurs more companies are faced with the possibility that no one in the next generation will have either the skills or interest to take over leadership when the current owner is ready to retire.

Planning for the succession of leadership and ownership is critical to the preservation of the family owned construction business. Transferring the leadership and ownership to one or several members of the next generation of family certainly has its distinct challenges and potential pitfalls. This planning can be more complicated when no one in the next generation will be ready to lead when the current generation is ready to retire or when no one in the next generation wants to lead.

This situation requires that the family come together to determine if their shared vision of the future includes continuing to own a business that will be lead by a non-family manager. Non-family leadership can be an interim solution that bridges the gap between generations of family leadership or a more permanent form of governance. In either case, the family must decide together if they can be comfortable as owners of a professionally managed construction firm.

In considering professional management and family ownership the family must consider what the ownership structure will be in the next generation. Who will own stock? What is the definition of an active shareholder? How will shareholders be trained? How will shares pass to succeeding generations?

The family must also consider which governance structure will be most effective for them. How will the Board be structured? Will there be outside members? How are family member positions filled? Once the family has decided that a non-family person will be hired to manage the company, it must decide whom that person should be. Are there current non-family managers that must be considered? What are the competencies and character traits necessary for this position? By what process will the selection be made? How is the person to be compensated? Should this individual own stock in the firm? Do they have the ability, motivation and respect to mentor and develop the next generation of family leaders if that is needed? Do all family members have faith in the integrity, honesty and intentions of the non-family leader?

The transition to a family-owned and professionally managed construction company is just as complex as transitioning to family management and ownership, with some additional issues. It is critical that the younger generations of the family participate fully in the process. The next generation of owners must be willing to commit to being active, knowledgeable shareholders and partners to ensure a successful continuation of the family business legacy and to maintain healthy family relationships.