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For owners, the time to transition is before they’re ready

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“The final test of greatness in a CEO is how well he chooses a successor and whether they can step aside and let their successor run the company.”

— Management consultant Peter Drucker

Too often, owner/managers of private companies hold onto the reins for too long.

This tendency deprives younger managers the opportunity to make their mark and the companies do not gain their energy, enthusiasm and leadership in top spots. Worse, this talent leaves because they don't see opportunity.

Management transition is important because it rejuvenates leadership and provides the basis for continuing growth in businesses. And developing the next generation of leadership and management is the only way for the existing generation to exit on its terms.

Here is an example, using managers who were identified, of two public companies that have worked through this challenge: AutoZone and FedEx.

The management team at AutoZone, with an average age of 51 years, is younger than the named management at FedEx, which has an average age of 61. The age spread of 11 named managers at AutoZone is 38 to 60. The age spread for the named managers at FedEx is 45 to 72.

AutoZone CEO William Rhodes is 49. FedEx CEO Fred Smith is 70.

So, how long to be a CEO?

AutoZone and FedEx clearly followed different strategies and have different histories of evolving managements.

Management transitioned years ago from founder Pitt Hyde at AutoZone, primarily because of Hyde's health issues. At FedEx, Smith has been CEO for about 44 years. He is likened to a “monarch” CEO in a recent Fortune article.

Jeffrey Sonnenfeld writes about monarchs: “They are often brilliant visionaries who believe that they are the one person on Earth who is truly indispensable to their companies. William Black ran the Chock full o'Nuts café chain for 60 years, with his last two from his hospital bed at age 83.

“Monarch CEOs are driven by an elusive quest for an immortal, lasting legacy, as well as for the heroic stature that comes with the position. They want the world to be different because they lived, but they can be blinded by their visions.”

Threatening successors often are eliminated before the board or anyone else realizes what happened, increasing the company's dependence upon such monarch CEOs.

These companies often suffer a stormy, feet-first exit — either dying in office or as the victim of a palace revolt.

Smith's long tenure as CEO of FedEx has led to an enormously successful company under his direction. Not sure that's the issue.

At some point, we need to ask ourselves, as managers, this question: how long is long enough?

Long tenures as CEO are not uncommon in the world of private companies. Mileage may vary. Here's a sample company.

The company had been operating in its manufacturing niche successfully for many years, although profitability and margins had been trending down. Dad was in his mid-80s and was driven to the office for a few hours each day, rolling his oxygen tank along with him. Maybe both the company and Dad were running out of gas at the same time.

Dad was involved with or made every significant decision for the business. His son was about 65 at this time and was the nominal president. The son was very frustrated with the situation.

The son died unexpectedly.

Dad was unable to handle this well, and his interest waned in the company. Unfortunately, there was no one else in a position to lead. Within a couple of years, this once fine company was in bankruptcy.

That situation was tragic, and it was clearly exacerbated because Dad could not or would not let go of the management strings.

A second company was in auto parts manufacturing. It was founded by a father who had three sons, all of whom worked in the business. Dad's goal was to groom one or more of his sons to run the business and, perhaps, to sell to a strategic buyer after another few years of growth.

One of the sons rose to the top and was made CEO. Dad remained as chairman, but he stepped away from management. (This is an excellent transition strategy – step away from day-to-day management, allow your successor to run the show, but remain in a chairman's role).

In fact, Dad moved to another state. The other sons also worked in the business, but Dad clearly passed the CEO mantle to one son. There were no inter-family rivalries over this.

The company, in fact, more than doubled in size during the son's tenure as CEO. A strategic buyer came along, and a substantial amount of liquid wealth was created for the family.

If you are a baby boomer and still running your company, it is time to start thinking seriously about transitioning management and ownership.

Managers who hang on beyond their “appropriate” tenure will inevitably run off potential successors who are capable.

Every company needs a new breath of energy.

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Write to the Editorial Department at editorial@lvb.com

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