Succession Planning and Ownership Transitions

Unfortunately, many midsized companies get caught by surprise by succession and transition challenges. Human nature shifts the focus on taking care of today’s business, but leaves them ill-prepared to deal with inevitable change. Like it or not, people will change companies, leaders will retire or pass away, and companies will grow in ways that require more leaders. When this type of change arrives unexpectedly, the business can suffer.

Whether it’s a family business or a professional services firm, a midsized company must plan for succession by cultivating talented people, dealing with the unexpected, and ensuring a smooth transition from one leadership stage to the next.

What We Can Do

We help midsized company CEOs and their successors through leadership transitions, both intellectually and emotionally. In many cases, a company may need to transfer ownership interests, and we support this delicate transaction as well. We often advise family businesses on the transition from one leadership generation to the next.

We also help midsized firms do the crucial work of developing a strong leadership bench. We show how training and mentoring can ensure a steady supply of future talent. Some of that talent will be purely additive, to help power company growth. Other people will be needed to replace leaders as they move onto new jobs or deal with health challenges. We also help companies match their up-and-coming leaders with the best-fitting positions.

How We Do It

We help midsized companies deal with succession and ownership transitions in four ways:

Map out where the company will be in three years. Often, we start by creating an organizational chart for the company three years from today, to see what positions will need to be filled. In some companies, we help chart career paths, so younger leaders know they have a bright future. In other firms, we identify the leadership attributes that are likely to be in short supply, so the company can develop and/or hire leaders with the right attributes.
Develop deep talent pools. Dynamic midsized companies develop talent constantly, knowing their most talented people will jump ship if they’re not promoted fast enough. These companies work hard to keep the best people, erring on the side of having too much leadership talent, just in case the company grows faster than expected. It is far less expensive to develop too much talent than it is to fall short of what the company needs and see growth stall.
Prepare for executive transition. For business leaders who want to slow down, retire, or sell within the next few years, we craft the appropriate steps to ensure the business stays on a growth path, and put succession plans in place.
Guide executive or ownership transitions. Companies handing the baton to new executives require strong leaders who also have the ownership mentality, work ethic, and the capacity to buy into the business. We advise boards and executives on all aspects of making the transition successful.

Schedule Your Discussion

Case Studies

The case studies below will illustrate how we support succession and ownership transitions.

Guiding KBFA's Transition to the Next Generation

Client Kevin Barry Fine Art

In 2007, Kevin Barry Fine Art Associates was at a crossroads. The family-owned company’s growth had stalled as the economy was beginning to nosedive. Purchases of artwork to adorn the halls of company offices – KBFAA’s core business – had begun to slow, judged expense items that could easily be cut. The founder’s plan, to retire and sell the business to his children and another manager in about five years, was at risk.

But today, with the help of CEO to CEO, KBFAA has weathered the economic storm. KBFAA, now a $7.2 million and growing firm, clearly knows where it is going, who is going to lead it when the CEO retires in 2014, and how it must be led for future growth.

The 15-person company, based in Los Angeles, procures artwork for corporate, hospitality, healthcare, and residential placement. The firm’s galleries in Los Angeles, Las Vegas and San Francisco carry a full-line of work including original art, limited editions, sculptures, tapestries, and fine art reproductions.

The company is owned and led by Kevin Barry, who has been in the art business for more than 30 years and has operated a Los Angeles gallery for the past quarter century. KBFAA comprises a team of experienced art consultants and other professionals in the art industry. The team is rounded out by Kevin’s daughter Allison, who runs the company’s San Francisco showroom; his son John, who runs KBFAA’s Las Vegas operation; and Jason Fiore, a childhood friend of his children who serves as KBFAA’s marketing director and general manager.

Everyone in the company handles sales and design consulting. KFBAA almost always supplies the art that it specifies in its designs, often outsourcing the production work to picture framing factories and other contractors, and then reselling it.

Six years ago, however, Kevin felt that he and his team had reached the limits of their ability to adequately plan for the firm’s future. Since they were a small company, the team found much of their time was being swallowed up by the minutiae of daily operations. “We were growing, but in some ways we were so busy with the day-to-day stuff that we couldn’t see the forest for the trees,” Kevin says. At the same time, Kevin, who is 66, was beginning to think about retirement. “It became important to develop an exit and succession strategy and figure out how my successors were going to carry the baton.”

Around this time both Kevin and Jason Fiore became aware of Robert Sher’s firm CEO to CEO and thought Robert might be of use to KBFAA. “Jason thought it would be a good idea to have an outside consultant come in to work with us, and maybe help us see the big picture in terms of what the future might look like and how we could grow the business,” Kevin says.

Kevin had actually met Robert 10 years earlier, when the latter was CEO of Bentley Publishing Group and KBFAA was a small customer of Bentley’s. Recalls Kevin:

“Rob came to the gallery in Los Angeles and we did business. We didn’t work very closely, but I remember being impressed with Rob. I liked the way he handled and presented himself. And I thought it was good that, as the CEO of his own company, Rob was out making the rounds and staying close to the streets, so to speak. A lot of CEOs who run small businesses get trapped into managing the business and lose that face-to-face contact. But Rob wasn’t like that at all.”

Kevin also enjoyed the fact that Rob already knew the art business. “We knew what was kind of in his wheelhouse,” he says, “so we had a couple conversations with Rob, and he came down and we talked some more.”

Kevin signed a month-to-month consulting contract with Rob with the initial goal of developing a one-page business plan. Immediately, Rob began to reach out to all five on the leadership team in the organization and met each one individually, either by phone, email or in person. According to Kevin, the results came quickly.

“It is advantageous for us that Rob had a good working knowledge of what the industry was about. But he is also a visionary guy with great organizational skills. He was able to see things more objectively because he wasn’t an employee. We had a lot of thoughts about succession and ideas about where to take the business, but we were so busy chasing the day-to-day stuff to execute – we were a little like rats in a maze. Rob kind of put our feet to the fire in terms of what his own expectations were, and made sure everybody got on board with the same goals. Then he was able to galvanize a lot of our thoughts and ideas into a plan of action.”

Because Rob came from a family business himself, it seemed to Kevin that he had experienced many of the same bumps, hills and valleys that KBFAA had. “I think he had a little bit of an advantage because he came from the art business, but to his credit, this is not an easy industry to understand – there are a lot of nuances to the business,” he said. “In some ways, we are all square pegs in round holes, because we are all creative types, and yet it is still a business.”

It was fortuitous that Rob began working with KBFAA right before the most challenging time in the company’s history. After three decades in the business, Kevin says that 2008 and 2009 were the toughest years he’d ever seen.

Rob’s first goal was to help KBFAA draft a definitive plan for where the business would be in five years and how it was going to get there. The focus was on results. Said Kevin: “Rob taught us two things: how to be more productive, and how to look closer at the bottom line and your margins.” The plan was concise, and articulated not only a crisp vision and mission, but specific metrics to be watched every month, specific high-value projects, and a set of key strategies that would deliver growth. The team would know each and every month if they were focusing on the most important things, and whether that focus was delivering the results mandated in the plan.

To help steer the company through rough waters, Rob worked with Jason. According to Kevin, Jason has been with the company for more than 10 years and already had significant managerial expertise of his own. “In 2008 and 2009, we had to tighten those purse strings company-wide,” Kevin says. “Rob worked closely with Jason to develop better financial reporting that helped us all determine what should be cut, and what should not be cut.”

In the depths of the downturn, KBFAA was reaching a juncture where growth had all but stopped. However, Rob pushed Kevin and his team to think about nearby adjacent markets. “Traditionally we did a lot of business with hospitality and high-end residential designers. But now we have broadened our target markets to include senior living facilities and healthcare organizations. ” Kevin says. “Personally, I always wanted it that way – I didn’t want all my eggs in one basket. But Rob helped us actually make the move.”

Financially, things began to turn around as well. “Our business was flat during 2008 and 2009, but in 2010, things began to pick up and we had a 10 percent increase in revenues,” Kevin says. “In 2011, we’re on track for another 10 to 12 percent growth.” KBFAA also opened a second gallery in Las Vegas run by Kevin’s son, and a third gallery in San Francisco, run by his daughter. “We’re certainly not out of the woods economically,” adds Kevin. “But since working with Rob, we’ve expanded our business, our revenues are growing, we added three new employees, and we’ve increased our market share.” Rob’s role includes teaching the next generation what it means to be owners. “We’ve got a good, strong team of young people – our executive team is all in their mid-30s,” says Kevin. “Since working with Rob there has been a definitive maturation process among them.”

2012 marked a change in business ownership and scale. With Rob’s direction and coaching, a team was assembled to begin the transfer of ownership to John, Allison and Jason. The board was formalized, with regular quarterly board meetings and Rob was asked to be the outside board member. The focus of the firm was clear, sales rose by 42%, and net profit grew dramatically, more than enough to fund the gradual transfer of shares to the next generation. In 2013, the governance process continues with Rob on the board. What has for long been governed by the founder is slowly transitioning board-based governance. Plans have been laid for growth toward a target of $15 million revenues over the next few years.

Asked what makes Rob so effective, Kevin suggests it’s a number of factors – among them intelligence, accessibility, communication and experience both as a CEO and working with many other CEOs.

“Rob has great people skills – he knows people very well. That’s one of his most salient features,” Kevin says. “He’s also triple smart, and part of the reason for that is that he doesn’t sit still. Rob chairs roundtables with other CEOs and works with lot of different companies and with different executives. Everybody in business is scrambling to get to that next level, and the exposure Rob gets from working with so many innovative leaders helps him, and helps us.”

“Rob went over and beyond most of our expectations,” he added. “We’ve had some bumps along the way, and that’s part of business, but Rob was always there for us. Having a seasoned CEO who is participating in the company’s growth, serving as a mentor, and providing guidance is great. It’s given us a little additional edge to see the future. You certainly want to focus on tomorrow, but five years is always right around the corner.”

Managing Ownership Transition: How HdL Made Its ESOP Work

Client HdL Companies

Clients of HdL Companies may have noted an extra spring in the firm’s step recently, as it seems to have been expanding its offices, services and staffing at a steady clip. A West Coast professional group helping local governments maximize revenues through compliance audits, analytical services and software products, HdL has in the past few years established a new HQ in Brea, California, expanded operations to Texas, added cannabis consulting to help local governments manage legalization, and continued to make significant new acquisitions.

Amid this impressive growth, many acquainted with the company may not realize that it has also been heavily engaged in the process of managing an ownership transition – migrating from visionary founders to the next generation of leadership under a new albeit home-grown CEO and senior team.

If handled badly, ownership transition in an early midsized firm can throw up a major set of hurdles and risks. Even if bold choices and a solid new leadership team are selected, challenges will have to be faced, and HdL’s own journey has not been without its hiccups and strains. But it is ultimately the combination of leadership, strategy and teamwork that can set the path for a next phase of growth. Getting this mix right is what has positioned HdL so well for its continuing success.

Embracing Transition. Founded in 1983 by Robert Hinderliter, and joined by co-owner Lloyd de Llamas in 1987, HdL, now has 96 employees in five offices in California and Texas (with three new states coming online soon). Early on, the founders recognized the major ownership challenge facing U.S. businesses, as according to some estimates up to 70% of the owners of small and midsized firms will retire within the next 20 years. This means that the ownership and control of some $10 trillion in assets will change hands, yet the majority of firms do not have ownership transition plans in place.

Hinderliter and de Llamas understood that a planned exit pathway was the best strategy to provide a positive retirement for them while also protecting the current employees and ensuring a platform for the future growth of the company they put so much effort into creating. Rather than selling to an outside concern, they opted for an Employee Stock Ownership Plan (ESOP). They mapped out a timeline for transitioning ownership to the employees, while identifying and mentoring a new leadership team combining inside and external talent.

It was a daunting task, with a number of key requirements. They had to find a next generation of leaders and owners in which they could have confidence. They had to win the buy-in of this new group to believe that they could really invest their lives into the business, including finding a way to fund the buyout. And the founders understood that, at the right time, they truly had to hand over the reins of leadership and allow the new team to get on with it.

As the example of HdL shows, a handover can be broken down into three main phases, each critical and with its own risks:

Mapping the Transition. A successful transition involves building a culture of ownership among the new leaders, and fully delegating all the tasks and responsibilities that owning a business entails.
Selecting the Leadership. The next CEO should be selected based on their true potential to be a great leader for the company. Many founders, failing to make hard a choice, opt for the emotional favorite, even if he or she does not have the full skill set.
Consolidating the New Team. The ideal leader will naturally develop followers and should make excellent decisions. But this is also the chance to update the management structure and draw in fresh expertise as well as outside advice and support to establish a fresh culture.

Making Succession Work. So, how did HdL’s leadership handle their transition? While managing the corporate changes, the company continued to expand impressively, moving to new headquarters to accommodate growth, adding its first out-of-state expansion into Texas with the purchase of Houston-based Sales Tax Assurance, and incorporating fresh services, including the new field of cannabis consulting. By the end of 2017, a decade since starting the transition, HdL had tripled its top line.

The key to this growth has been a series of excellent strategic decisions.

The first good choice was the new leadership. In 2010, the owners appointed Andrew Nickerson as President and CEO. Nickerson had joined the company in 1992 and had held a succession of roles with increasing responsibility, rising to vice president.

“When I was appointed with a new management team, employees already owned 33 percent of the firm, so the transition was unmistakably under way,” Nickerson remembers. “The completion of the ESOP buyout from the founders within two years made it clear that the future was ours to create, and it was very exciting.”

By mid-2013, Nickerson’s stewardship at HdL had borne fruit. Three long-time leaders had solidified around his leadership. The company had already paid off its note for buying one-third of the shares. And revenues were up.

The second important decision was to develop new business. With the approval of the founders, Nickerson and his team undertook growing the company to the next level. That made some of the older ESOP participants nervous that their ownership might be put at risk.

As CFO Jeff Schmehr, who joined HdL in 2005, recalls, “When we became a 100% ESOP, our near-retirement-aged employees lobbied hard for an ultra-conservative growth strategy. We wanted to minimize the risks, but we knew our employees were better served by supporting both the core business and developing new growth areas. Now I receive phone calls from these retirees congratulating our team on a job well done.”

The third key departure was to expand the senior management. With strong opportunities beckoning, the company required more leadership bandwidth. So, in 2013-15, Nickerson hired five more senior management leaders. The Board developed too, with three new outside members joining in 2016-18.

Consolidating the Change. It was not all smooth sailing, however. The company was correct in recognizing the need to change. But each new initiative brought fresh requirements, and all this change brought sharp challenges and “pain points” – strains in the system represented by inefficiencies, lack of clarity, skills gaps and risk. Moving from the founders to a new and expanded leadership team, opening new offices and taking on new product lines highlighted the need for a more disciplined management practice. The team recognized that this was vital to keeping the transition on track.

A fourth key decision, then, was to focus on management consolidation and growth planning. This was not just a general idea but rather an active choice to invest meaningful time, energy and resources into the effort, including bringing in outside help.

In spring 2016, Nickerson and Schmehr reached out to Robert Sher of CEO to CEO, the expert San Francisco-based consulting group specifically oriented to midsized firms such as HdL. This immediately gave them access to a wealth of top executive expertise. While the HdL leadership team had their hands full running the company, Sher and his colleagues were able to focus exclusively on the needs of the HdL senior management and on practical steps to ensure that agreed improvements actually took place.

At a delicate moment in the transition, the leadership especially appreciated the objectivity of the advice Sher was able to provide.

“Within the company, there was a progressive, change side, and there was a kind of status quo side. We realized that a new director would become the deciding factor,” recalls Schmehr. Nickerson and Schmehr attended a seminar hosted by Sher, and they liked what they saw. “So, the next thing we know,” Schmehr continues, “we are turning to CEO to CEO in several areas, helping us through the changes, and especially helping Andy [Nickerson] find creative ways to deal with the issue of balance on the Board.”

One of the first innovations was to develop a One Page Business Plan, bringing clarity and accountability to key corporate objectives. The leadership committed to meet monthly to review progress and encourage bonding within the group. Communication and teamwork increased immediately, deepened by a two-day workshop on team cohesion.

“As part of that trust building, we were encouraged to share something personal about ourselves,” says Schmehr. “I think even Rob [Sher] was amazed at the kind of personal information that came out during those moments. It showed everyone that there was in fact a high-level inherent trust within the room.”

This bonding effort was combined with ongoing business coaching, for Nickerson and other key members of the leadership, provided by Sher and Megan Patton, another CEO to CEO principal. Being a CEO can be lonely, and this process helped Nickerson think through the challenges and come up with fresh solutions.

“We were well into the transition by then, and were all feeling a lot of pressure to perform,” says Nickerson. “But some of the things we were facing where out of our wheelhouse. Rob [Sher] was able to draw on a huge breadth of corporate experience to help us find fresh ideas and new solutions. It was absolutely crucial.”

These discussions helped the team acknowledge that the new areas of business demanded new expertise they did not have in-house. While the out-of-state acquisition in Texas, HdL’s first, needed to be bedded down, the team was impatient to acquire more. Glenn Fishler, another CEO to CEO principal, coached the team through a planning process, so that all further acquisitions would be strategic and well planned.

The CEO to CEO team also provided advice on the particular challenges of a start-up venture, which was effectively the case with the new cannabis consultancy. HdL proved to be expert at the work itself. But unlike in the sales tax auditing field, where the firm is a recognized leader, they did not appreciate the essential need for aggressive marketing when moving into a new area.

“We had this nice dinner table all ready and set for California’s local governments, but the word wasn’t getting out to everyone,” says CFO Schmehr. “Basically, we were sitting back and taking clients as they came, and Rob [Sher] said, ‘Yeah, you’re not going to grab market leadership that way. You’ve got to get out there.’ He was instrumental in making sure that marketing for the new area was not under-resourced or under-appreciated, otherwise we would have missed the window of opportunity.”

The consolidation process also focused on Board transition, as it needed to move from an internal and founder-controlled body to a more professionalized strategic entity. This dialogue led to a successful mapping out of the additional skills required, recruitment of three new members, and training on new roles and responsibilities, so that the Board could work collaboratively with management.

Tying all these efforts together, the HdL leadership launched a process to develop a new long-term vision. To kick off the exercise, the CEO to CEO team organized another two-day offsite workshop to share approaches on how to develop, consolidate and drive a fresh vision. Once approved by the Board, the resulting strategy will guide the company’s future over the coming decade and ensure that the workforce at all levels is pulling together.

Be Strategic about Succession. Ownership succession planning requires a strategic approach that starts several years before the transition moment. Founders must be thoughtful and realistic. Then they must move steadily to transition the business for a new future. The new owners also have to be strategic, mapping out their plans while recognizing and taking steps to fill their weaknesses and gaps – whether through additional senior managers, fresh Board members or expert external support like CEO to CEO.

As Nickerson says, “From a macro-perspective, taking 10 years to change our company into a team-led growth machine seems slow. On the other hand, it felt like each year at some level our culture and leadership changed. We took it slowly, one step at a time, even though we were eager to arrive where we are today. In the end, we have preserved the best of what our founders, Robert and Lloyd, created along with new energy and high expectations.”

The Founder’s Untimely Exit

The founder of a midsized company had no intention of exiting— not even after the diagnosis of a terminal illness in his early 60’s. His #2 brought CEO to CEO in to assist with the delicate time period (ultimately 8 months) between diagnosis and death. He had set things up quite well financially and the company was fiscally sound.

We helped with succession by helping the board change to a more formal, powerful board, and helping deepen the succession planning process at all levels, since a significant percentage of the leadership team was looking to retire in five years.

Changing Out a Partner

Two partners had worked well together for a long time – until their personal situations had diverged. One needed to keep working and was energized to do so. The other had developed significant net worth and was burning out.

CEO to CEO helped the partners understand that it was “ok” to have one partner exit, and helped arrange the buyout. They also took their best employee and promoted him to partner, allowing a small buy-in— which might eventually lead to the full buyout of the senior partner when he desires retirement.

Midsized businesses can outlive their founder and his/her management team – but only with careful succession planning and thoughtful development of the next generation of leaders.

Succession Planning and Ownership Transitions

What We Can Do

How We Do It

Case Studies

Guiding KBFA's Transition to the Next Generation

Client Kevin Barry Fine Art

Managing Ownership Transition: How HdL Made Its ESOP Work

Client HdL Companies

The Founder’s Untimely Exit

Changing Out a Partner

CEO THINK: blog

About Robert Sher

Book Robert To Speak

Contact Information

Subscribe for New Articles