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Wednesday
Sep032014

Succession of Authority: cost/revenue centre to profit centre responsibility

The distinction between power and authority is subtle but important. power is the capacity to influence the behaviour of others, while authority is the extent to which a person’s power is viewed as legitimate. Successors in family business often have power as a result of being members of the family, but they may lack the authority needed to effectively lead the firm.

As noted below succession essentially has next generation leaders moving from learning about the family business to learning to lead the business. This of course requires incumbent leaders to move from leading the family business to learning to let go and one of the challenges of family business, particularly entrepreneurial ventures, is the inability of a leader to let go of control. The leader may recognize the need to have a successor; that he/she won’t live forever. However, identifying a successor and letting him or her have the power and authority to take the business in new and different directions is another matter!  In our experience there are two important aspects to this letting go: having something else to do and having confidence and trust in those taking over.

Defining a meaningful role for the outgoing leader is extremely important and those associated with passing on values to grandchildren, being a brand ambassador, or serving in the industry groups and associations can all provide meaning to post- executive roles. 

Establishing confidence and trust in a successor’s ability to lead the family firm can be facilitated by progressing the aspirant(s) through various levels of managerial responsibility prior to any hand-over. These progressions need to move beyond authority for just cost or revenue centres in the business to those that have profit responsibility. That is where trade-off decisions have to be made even if it is only for part of the business the experience with this level of authority is an essential part of the preparation for both incumbent and aspirant.