Time to hand over the reins

Baby-boomers need to write "wills" for their businesses - which means opportunities for corporate refugees, writes JULIE MIDDLETON.

You're a baby-boomer. The business you founded years ago has provided an enviable lifestyle, but you're thinking about cutting your hours. The problem is, how?

Most founder-operators don't plan their succession. They ignore it or baulk at the cost of employing consultants to help.

When they have a heart attack on the golf course, the business goes in a fire sale, starts sliding downhill or ends up with the kids, Uncle Joe, an old mate or a hastily promoted staff member, often with disastrous results.

The result? Companies with limitless potential risk lasting just the lifetimes of their owners.

And with small and medium-sized businesses occupying a key role in expanding our much-desired knowledge economy - about 99 per cent of all Kiwi businesses employ fewer than 50 people - the potential loss is vast.

"It's a waste," says Stephen Mockett, who with former Simpson Grierson partner Don Jaine directs the Auckland branch of Swann International.

A growing part of their executive search business, which they call "succession transition," is helping founder-operators to find the right successor so businesses continue to grow and thrive; equity is frequently part of the deal (see sidebar).

But apart from professions such as law or accountancy, where partnerships are common, and despite the example recently set by Warehouse founder Stephen Tindall, the numbers thinking ahead are still small.

Mockett, ex-Bell Gully Buddle Weir, and Morgan and Banks, estimates that the number of small and medium enterprises with a will for their business is as low as 5 per cent.

"Just about every corporate would have at least a recognised succession planning system," he says.

"But US statistics suggest that in founder-owned businesses, up to 60 per cent have no planning at all in place for the founder, and anecdotally in New Zealand, we'd have to say at the very least it's 60 per cent."

The issue is crystallised, he says, by the ageing baby boomers - it's simply an accident of history.

"Between now and 2010 these guys - and they are guys usually - will be aged between 55 and 65 and they don't want to work for ever, but they don't want to retire, usually, either."

Selling up, says Mockett, isn't the answer.

"In about 99 per cent of the work we've done in this area, the businesses shouldn't really be sold.

"It's not in the interests of the owner either, because the business has latent potential and ongoing revenues."

For Gary Siegel, one of the founders of major manufacturer Fluid Fertilisers, the catalyst for change was his 60th birthday.

"I got to a stage where I had to decide whether I wanted to drive the business to the next stage or sell it on. I guess I was losing my drive," he says.

His 25 per cent business partner, Horrie Burgess, felt he was not the right guy to take over.

Siegel had seen another company transition successfully using consultants, and wanted to retain his 75 per cent shareholding as well as find more time for golfing, fishing and travelling. "I just want the company to prosper."

After a careful process led by Swann, ex-Wrightson manager Wayne Kelsall, 48, started leading Fluid's 45 staff last October.

Siegel pronounces himself delighted with the outcome.

Mike Gardner, 54, who founded ear-tag business Zee Tags in 1992, says the installation of new general manager, Simon Tree, 36, lets him concentrate on international markets and research and development.

Around 90 per cent of the profits generated by the company's 28 people come from exports, and Tree expects the company will swell to 100 staff within three or four years.

Says Steve Hoskens, 50, one of the three founders in 1982 of bathroomware company Athena:

"We could see we were not growing like we were when Mike [Hardy, a co-founder and industrial chemist] and I were 10 years younger.

"But it wasn't just energy and enthusiasm. The skills of the marketplace have got beyond us baby-boomers."

Gary Guernier, 45, arrived in May last year and leads more than 80 staff whose shower stalls, baths and handbasins can be seen in homes and businesses all over the South Pacific.

Hoskens now bears the title marketing director, and has dropped back to a four-day week so he can give more time to voluntary work at his golf club.

But some baby-boomers can be reluctant to relinquish control even when they recognise the need for change, says Jaine.

"They're generally strong entrepreneurs, and they generally have got incredible drive and passion," he says.

"But they've tended to be older-style leaders.

"They've tended to be more iconoclastic and command-and-control style leaders, and as a result tend to recruit people who are more sycophantic - people who work for them as opposed to work with them."

Myths and fears can also stall planning.

Says Jaine: "That's the biggest single issue - stories that says so-and-so got his business wrecked by someone else coming along."

Myth number two: Mockett says founders want to pass their businesses to their children, but bloodlines are no proof of prowess.

"The issue is not so much whether the family should take over the business.

"It's whether the parent, usually the dad, is the one best able to bring their kids into the business and in to that role.

"Almost inevitably, they're not because they won't do the hard things that are required.

"It's best to put in an intermediate CEO, and make it part of the CEO's job to nurture these people."

Good succession planning, says Jaine, has the ability to have a macro effect on the economy. "There are a lot of these businesses around.

"There is tremendous opportunity to keep really good New Zealanders in New Zealand by presenting them with more of these opportunities."