Why Succession Planning Matters

Viacom Chairman Sumner Redstone, 84, isn't the only corporate leader who's not ready to designate an heir apparent

by James Olan Hutcheson

Few would say Sumner Redstone is an ineffective business leader. But Redstone, who is chairman of both Viacom (VIA) and CBS (CBS), and presides over his family company National Amusements, which owns a controlling stake in both companies, is struggling—some would say spectacularly—with one critical component of family business leadership. With the recent news that he is reportedly asking his daughter and longtime heir apparent, Shari, to leave Viacom, it seems that even the famously shrewd Redstone has once again been outdone by the demands of succession planning.

Redstone has already driven his son from the business, a conflict that was settled in 2007 when he paid his offspring $240 million to relinquish his claims. And now the 84-year-old appears ready to force out his last, carefully cultivated candidate for keeping the family business in the family (see BusinessWeek, 8/6/07, "Redstone: 'Legacies Are for Dead People'").

There are good reasons why succession planning is one of the most challenging to-dos on a family business owner's checklist. To begin with, the stakes are high—so high in fact, that most family businesses fail to negotiate the transition and are sold either to pay taxes or because no one in the family is willing or able to take over. Additionally, the communities of stakeholders involved in the process can be numerous and are often in conflict.

It's Not Just a CEO Thing

To adequately prepare for succession, you should evaluate the skills and attitudes of everyone in the organization who is a candidate for a leadership position. Everyone? Yes, because the CEO isn't the only position that requires succession planning. If a company suddenly loses its chief information officer, chief financial officer, or another key player, it can be nearly as drastic as an unexpected vacancy in the president's office. That's because typically staffers are required to maintain their previous responsibilities in addition to taking on jobs delegated from their bosses, in a chain of cascading delegation that may directly affect everyone in an organization, even through only one position has been replaced.

And this look at the complexity of succession planning hasn't mentioned the matter of family dynamics. Planning for succession has to take into consideration family members' personal conflicts that can date back decades. For instance, the Redstones' falling-out may have started when Sumner divorced his wife of 50 years, a move that reportedly did not please his daughter.

Finally, succession planning isn't something you can do once and forget. To be a conscientious family business leader, you have to continually revisit your plan, reviewing and updating it to reflect changes in company value, market conditions, and your own health as well as the abilities and passion of the people you plan to pass it on to. To return to the Redstone example, planning for succession at one time appeared to be a completed project at Viacom, with Redstone visibly grooming his daughter to take over. But circumstances changed, and now so must the succession plan.

Too Many Offspring May Want the Job

Small wonder, then, that the vast majority of family businesses do not have written succession plans at all. Even when it comes to companies with current leaders nearing retirement, most haven't formally addressed succession.

Family business advisers have developed a reliable and workable strategy for succession planning. It starts by insisting that you start planning early—even if the leader doesn't anticipate retiring for a decade. Begin by realizing that succession entails three aspects: management, ownership, and taxes.