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Succession Planning and Private Family Firms HRMG 5000/Managing Human Resources Webster University-Fort Bliss Campus Professor William Sweetnam July 25, 2011

Jos A. Ibarra joseaep1@yahoo.com/915-408-2735 Summer 2011

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Table of Contents

Abstract About the Authors Succession Planning and Private Family Firms Succession Plan Steps Summary Evaluation References

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Abstract There are more than 13 million family-owned businesses in America. Yet there are few companies that have managed to survive throughout good times and bad to pass on their legacy from one generation to the next over several centuries. An examination of 165 top management successions in US firms during 1989-1991 revealed that external successions are more likely in small firms, in firms with poor economic performance, and in firms which top positions for example, Chairman and CEO. This last finding illustrates that successor interests and demands such as organizational power are also important in determining the final match between manager and firm. It is also found that, on average, the post succession performance of external successors is superior to that of internal successors. This could indicate that the Board of Directors faces an agency problem, leading it to appoint to often from the inside.

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About the Authors Succession Planning Idalene F. Kesener. Professor Kesner is associate Dean of Faculty and research and Frank P. Popoff Chair of Strategic Management at Kelley School of Business, Indiana University, a post-secondary educational institution. Prior to July 2009, she was Chairperson, Department of management and Entrepreneurship. She has a Doctorate in Business Administration. Professor Kesner has spent her career teaching strategy. She is also strategy consultant with companies internationally. Internal vs. External successions and their effect on Firm Performance Beni Lauterbach, Professor, Graduate School of Business Administration, Faculty of Social Sciences, Bar-Ilan University, PhD, MBA, BSc. Joseph Vu, Associate Professor, Department of Finance, College of Commerce, DePaul University, MBA, PhD, BBA. Jacob Weisberg, Professor, Graduate School of Business Administration, Faculty o Social Sciences, Bar-Ilan University, MSc, PhD, BA. Understanding the Complexities of Private family Firms: An Empirical Investigation Deborah L. Murphy Associate Professor Department of Finance, College of Business Administration University of Tennessee

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Succession Planning in Theory and in Practice Introduction In 260 BC, one of the bloodiest battles in the history of China was fought in Changing. The Qin army was led by General Bai Qi. The Zhao army was led by General Zhao Kuo. Both generals were well versed in the strategy of war, including the famous The Art of War written by Sun Tze. The battle resulted in the glorious victory for the Qin army, having annihilated 400,000 Zhao soldiers, which was practically the entire armed force of Zhao. What is the decisive factor in the outcome of the war? The answer lies in the generals' application of theory. General Bai Qi was a veteran in battle, having came to the rank of General through years of experience in military. On the other hand, General Zhao Kuo was inexperienced, his application of theory was mainly in the form of debate with his father.[1] Similarly, theories of Human Resource Development work well in some companies but not in others. It all depends on how flexible the company is in applying them. In this paper, we will discuss the theory of Succession Planning. We will also evaluate the application of the theory in various organizations. What is Succession Planning? Succession planning is simply a formalized plan of activities in the event of planned or unplanned leadership vacancies. Often, it is applied only to CEOs, but it should address other leadership levels as well. Succession Planning has also been defined as a means of identifying critical management positions, starting at the levels of project manager and supervisor and extending up to the highest position in the organization. Succession Planning also describers management positions to provide maximum flexibility in lateral management moves and to ensure that as individuals achieve greater seniority, their management skills will broaden and

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become more generalized in relation to total organizational objectives rather than to purely departmental objectives[3] Simply stated, succession planning is a process that starts from recruiting employees, developing their skills and abilities, and preparing them for advancement. The purpose of succession planning is to ensure that there are highly qualified people in all positions, not just today, but the future from now. The real key in succession management is to create a match between the organizations future needs and the aspirations of individuals. How to do succession planning? The Seven-Pointed Star Model for Systematic Succession Planning and Management shows how succession planning can be done: The first step to succession planning is to make the Commitment Top management must be committed to the effort and mentally prepared for sudden loss through death, disability, resignation or retirement. The second step to succession planning is to Assess Present Work/People Requirements the organizations decision-makers must find ways to clarify what work people do and what measurable outputs they should achieve. The third step to succession planning is to Appraise Individual Performance Organization should establish performance management systems to pinpoint and eliminate barriers to individual work performance and encourage people to perform to their peak. The fourth step to succession planning is to Assess Future Work/People Requirements Decision-makers should try to lead by determining what competencies will be required to help the organization succeed in the future. The fifth step to succession planning is to Assess Future Individual Potential Organization should establish a process to assess future individual potential. This process should provide answer to questions such as: How well are individuals prepared for

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advancement? What talents do they possess, and how well do those talents match up to future work requirements? The sixth step to succession planning is to Close the Developmental Gap Individual may need systematic training and on-the-job development. They may also need preparation for the future. Individual developing planning is a systematic effort intended to help people prepare for future business conditions. The last step to succession planning is to Evaluate the Succession Planning Program Decide on whether succession planning is working is as simple as having qualified applicants from inside the organization to meet most vacancies as they arise or require demonstration that succession planning effort helped the organization save money on job searches. Why do succession planning fail? David Rossiter, as Head of Human Resources in The Hong Kong Hospital Authority, list 10 critical failure factors in succession planning; comprising mistakes he has made himself in his 28-year career in human resources. Taken separately, none of them amount to an impending disaster, but a combination of all 10 does amount to a disaster: The first reason why succession planning fail: Do nothing Assume that someone else--the human resources department, senior management or the board--will sort it out when problem arises. It is a mistake to leave it to the HR department, because usually HR don't have the ability to convince the organization of their choice of replacements. The second reason why succession planning fail: ties yourselves in knots with paper. Avoid burying yourself in forms and spreadsheets. The third reason why succession planning fail: Buy off-the-shelf "miracle cure" software Off-the-shelf software is not customized to match the needs of the company. The fourth reason why succession planning fail: Be too rigid A succession plan must have a wide focus, taking into account how it fits into the company's business plan, and the impact of mergers and acquisitions, growth or downsizing, for example.

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The fifth reason why succession planning fail: Devising a plan that is not linked with leadership development planning The succession plan needs to balance both personal and organizational development objectives. The sixth reason why succession planning fail: Devising a succession plan that has been created in a vacuum Make your succession plan too department-focused, designating it as secret human resources business, or design a succession plan without consulting the people who actually appear in it, and nasty surprises may await you when the time comes to put the plan into action. The seventh reason why succession planning fail: Devising a plan that bears no relationship to core competencies The risk with this is over-promotion--promoting people beyond their level of competence. The eighth reason why succession planning fail: Creating a plan that lacks clearly defined accountability standards. The succession plan must be someone's responsibility, or it will become nobody's job. Everyone involved should know who is responsible. The ninth reason why succession planning fail: Creating a plan that has no relationship with compensation, reward and recognition plans Compensation and benefits should motivate for the future, not just reward for the past. The succession plan should take account of compensation, rewards and recognition to motivate the designated person to stay with the company, and with the plan. The last reason why succession planning fail: Creating a plan that has no relationship with hiring plans Internal and external hiring plans should be balanced. While the HR department may well know where to find the right person, the plan may come to nothing if the person is working for another company and the company is not prepared to hire someone externally. Succession Planning in Practice The company that got it right - McDonalds Corporation McDonalds was tested in CEO succession planning in 2004. The then CEO, Jim Cantalupo, died unexpectedly in April 2004.

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The Board was to able to replace him in an orderly manner six hours later. A few weeks later, the replacement CEO, Charlie Bell, was diagnosed with cancer, and the board again was able to make an orderly replacement. Four days into his tenure as CEO, Jim Skinner, called a meeting of top executives and outline the strategic direction. He said, "I had three goals: long-term sustainable growth; talent management and leadership development; and promoting balanced, active lifestyles, which meant trying to be part of the solution to those things that were problems not only for McDonald's image but for society as a whole." PR News praises the succession planning in McDonalds, saying McDonald's succession plan offers senior communication execs a textbook example on how to maintain business continuity when something unexpected and/or grave happens. Even though the Board of Directors took only hours to name a successor, McDonalds has been grooming the potential CEO for years. When the time comes for the new guy to lead, he is ready. A brief look into Skinners career in McDonalds shows that to be the case. Skinner has been with McDonald's since joining the company in 1971 as a restaurant manager trainee and is a former head of its European business. In July 2004, as part of a management shake-up designed to support Bell, he was given oversight of McDonald's operations in Asia, the Middle East, Africa and Latin America.[8] The fact that just four days into his tenure as CEO, he is able to come up with strategic direction, shows that Skinner is really prepared for the job. In fact, investors were so impressed with the choice of CEO, that McDonald's shares rose on the New York Stock Exchange. The company that got it wrong Citigroup Inc. The Globe and Mail (Canada) reported Another head rolls in U.S. lending debacle[9] Whose head is it? It turns out to be Charles Prince, the embattled chief executive officer of Citigroup

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Inc. He is the second casualty of the subprime mortgage debacle, after Stanley O'Neal was forced out at Merrill Lynch Merrill Lynch -Search using: News, Most Recent 60 Days& Co. Inc. A month later, the Board of Directors in Citigroup appointed Vikram Pandit to be its CEO. Mr Pandit joined Citigroup for less than a year, after Citigroup bought over his hedge fund. While he is a Wall Street insider, he has no experience in running a big company or consumer banking business. A report in Workforce Management comments A report in Workforce Management comments The decisions by Merrill Lynch and Citigroup -Search using: News, Most Recent 60 Days to ignore their own succession planning processes and look outside the companies for CEOs represent a failure of their boards of directors to properly plan for a void in leadership, experts say. Experts say an over-reliance on incumbent CEOs to plan for succession makes it all but impossible for the board to obtain independent assessments of potential successors. But when a board loses confidence in its CEO, it loses confidence in successors as well, says Alan Johnson, a compensation consultant. That's one reason why boards look for CEOs outside the company in times of crisis. Succession Planning rather than a single, dramatic movement, the smooth succession of a business more resembles a flow of events that occurs over time. Like a well-run relay race, the handing over of a company should be graceful, carefully strategized and well executed if it is to be successful. Unfortunately, the majority of business owners neglect to plan so seamlessly for their own succession. More often than not, the reasons are psychological. No one likes thinking about their mortality, and entrepreneurs are no exception. Moreover, some owners so closely identify with their ventures that they can't imagine their offspring of long hours and hard work continuing

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without them. Others believe they're too busy to plan for the day they will leave and consequently put off succession planning until tomorrow. But tomorrow may be too late. Serious illness, disability or death can catch a firm by surprise. A crisis such as this brings great upheaval, and it is difficult to make rational decisions in the best interests of a company when emotions are running high. That is why a well-thought out succession plan is essential to the continuation of a business, no matter what its size and structure. The Challenge Ninety percent of U.S. businesses are family-owned, and one-third of the Fortune 500 is either family-owned or family-controlled. Yet only 30 percent of family-run companies today succeed into the second generation. An even smaller 15 percent survive into the third generation. The reason, according to many experts, is obvious - the lack of an orderly succession plan. Owners should begin planning while they are still healthy and active in their enterprises. If you wait until after you're 65, you can't do many of the jobs associated with succession planning, such as teaching, explaining how the business operates, and passing on the spirit and vision with which it was founded. The time to plan is between the ages of 55 and 65, experts advise. And the handing over of the baton, the plan itself, should be a process, rather than a single event. Some succession consultants recommend a three-to-five year plan while others advocate five to 10. Some even recommend 10 to 15 years. All agree, however, that the more time allotted for planning, the better the outcome will be. Adequate planning time enables you to test potential successors in different roles and evaluate their maturity, commitment, business acumen and leadership abilities. If you've already anointed your successor, adequate planning time allows that individual to build up expertise so the passage transpires so gracefully that no one in the company even feels it happen.

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Choosing Your Successor Begin by writing down your thoughts about when you want to step away from the daily operations of the business. Would you like to spend more time with your spouse? What do you want to accomplish over the next 15 years? How much money do you need? What personal goals could you achieve if you weren't running the company? What would success in a new endeavor mean to you? Next, discuss your ideas about the future with your family, senior management team and key employees. Decide how long you want to remain active in the company and in what capacity. If you see retirement as an opportunity to travel, be sure to include that in your discussion as well as where you want to live and what role, if any, you want to play in your community. At the same time, think about the long-term stability of the business. Most corporations and partnership business agreements spell out what will happen in terms of shares of stock, assets or the buying out of the company by remaining principals or partner(s) if one of the owners or principals retires, dies or becomes disabled. But sole proprietorships often operate without any such legal blueprint. Once you've established these parameters, begin revising your business plan, assuming you already have one, or write one if you don't. The most effective business plans are prepared by owners in conjunction with their successors. They include any future new products, plans for expansion, growth or new investment, and a candid assessment of a company's current environment and competitive positioning. This joint business plan exercise will give you an opportunity to evaluate your successor's goals and ideas for the firm, while forcing your successor to think through and write down specific plans for running the operation.

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In fact, you could use this business planning exercise to evaluate a number of possible successors. And as your successor is putting thoughts down on paper, you as current owner should be developing a business transfer plan. In it, develop a timeline for starting the transfer of ownership to others. Decide when: Control is shifted, i.e., your successor starts assuming some of your responsibilities. You successor takes on a major portion of the responsibilities. Responsibility for day-to-day operations shifts totally to your successor. You will formally retire. This timeline will also help you determine the length of time you have available to train your successor. Choosing within the Family The head of a company has no greater responsibility than identifying a successor who will be equally or more successful in running the operation. More often than not, the head of a family-owned operation chooses a son or daughter as successor. However, it's not unusual for an owner to have more than one child competent enough to step into the parent's shoes, making the selection process more difficult. Some owners decide to divide up the functions, giving each child equal responsibility. That, too, has its problems. Multiple successors must have comparable ability, motivation and commitment. You should not confer equal authority, compensation and stock ownership to them if their contribution to the running of the business is unequal. The successors must divide day-to-day job responsibilities according to their individual talents. And, the successors must share a common philosophy about the future direction they want the company to take and must have a history of resolving conflict constructively.

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Whether you choose one or more family members to take over, using a grooming timetable increases the chances for a smooth and ultimately successful transition. One model is for the family member to spend the first five years after graduation working outside the company. The next five years would be spent working in the firm, getting the best job experience you can provide. Teach them about the business, but make no commitments in terms of an eventual leadership position. By then, you'll know if they are qualified and whether the process is working. Once they reach this stage, you start weaning yourself from the business and giving them more direct responsibility. Alternatives If you are unable or reluctant to use your offspring or other family members, you need to set your sights elsewhere. There is probably no more fertile hunting ground than right there in your own company. Your most likely candidates will come from the ranks of middle and upper management. Typically, these employees have already received some grooming and have displayed the necessary capabilities for working their way up your organization. When identifying candidates, you need to ask yourself several questions. What are this individual's technical and managerial skills? What are this person's strengths and weaknesses? What needs to be done to prepare this candidate to step in? And, when do I see this potential successor being ready to take over? Candidate development is a critical aspect of successful succession planning.

The Financial Aspects of Succession Planning

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The selection and training of a successor will all be for naught if you don't also develop a financial strategy for handing over your business. Perhaps the most significant activity associated with succession planning, a financial strategy protects your company, your family and your employees against a monetary burden that could doom the entire process to failure. For example, if you plan to turn over your business to your children, you have to think about the heavy gift taxes they will face. If you die, your heirs can suffer an equally prohibitive estate tax. Setting up an employee stock option program is critical if you plan to sell your business to staff members. And lastly, you may decide to sell your firm to a chain or a local competitor. If so, you need to know what your company is worth so you can get the best price for those long years of hard work. Determining Worth No matter who inherits your business, it's critical that you get an accurate valuation of your business. Such a valuation encompasses tangible assets such as real estate, buildings, machinery and equipment, as well as intangibles like employee loyalty, manufacturing processes, customer base and business reputation, patents on products and new technologies. Sometimes it is difficult to estimate the value of your firm yourself, however. In those cases, professional valuation companies know what to look for and what questions to ask. You also probably need the help of your accountant and any other financial advisors. The question of value becomes even more complicated when you attempt to put an exact price tag on your business. Price can vary depending on the circumstances. For example, the selling price to your children may be less than the amount you would ask from a large chain that wanted to buy you out. In any event, a fair value must be used, one that will withstand IRS scrutiny.

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Taxes can also influence how value is determined. To reduce potential estate taxes, you may want your accountant to argue to the Internal Revenue Service that your firm has minimal value. Also, current stock purchase price or buy/sell agreements may not reflect the dollar amount you believe the business is worth. A business valuation is also a way to predict your company's future. Using your firm's historical and financial records and your judgment as owner, work with your valuation firm to calculate whether your business will grow or decline, future inflation rates, and anticipated costs and expenses of running the operation. The Transfer Your successor should help determine the method you use for transferring your business. The structure of your company will also be a factor that will influence your choice of the transfer method. If you are a sole proprietor and want to keep your company in the family, you need to think about federal estate and gift taxes. Or if you plan to sell your company to a family member so you can retire, you need to make provisions through insurance policies to help your successor finance the purchase as well as pay for the ensuing taxes. If you're in a partnership, you face a different set of decisions. Does your percentage of the business automatically transfer to your spouse or offspring upon your death or, as part of the partnership agreement; is your partner supposed to buy out your shares? If you have chosen the latter arrangement, you need to take out enough life insurance to provide your partner with adequate funds to pay for the purchase. Closely held corporations have issues of their own. Stockholders may stipulate that upon their death, their shares will automatically transfer to their surviving spouse or children. However, if

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the shareholder's heirs subsequently want to sell their stock, sufficient provisions should be made so remaining shareholders have enough cash for the buy-out. Here are some of the ways you might arrange for the financial transfer: Gifting Trusts Buy-Sell Agreements Life Insurance These are only brief overviews of each of these methods. Before making a final decision consult legal and financial advisors to see this might be the best for your particular financial situation. Planning and Private Family Firms Deciding who will occupy vacant leadership positions in any organization is one of the most important functions a company can undertake. Yet it is unusual for companies to give succession planning little thought or attention until a position is vacant. Companies should institute an ongoing plan of succession as a part of their strategic planning. Hard-and-fast rules do not exist when it comes to succession planning. According to research there is no one correct way to do it, there are no 12 steps that show you how it should be done. (Nick D'Agostino, chairman of D'Agostino Supermarkets, Larchmont, N.Y.) There are different family situations in every business; normally the entrepreneur is trying to pick his successor, and the owner may not necessarily want it to be his oldest son, who might well run the company into the ground. There are also emotional problems involved, as well as preserving the business, which is what small business owners basically want to achieve.

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This writer reviews the development of succession management strategies in private family organizations specifically supermarket companies and how they handled succession planning. A complicated situation involving two families at one time tied up Giant Foods, Landover, Md., when the Cohen and Lehmann families agreed to disagree, and finally gave the presidency and a voice to Joe Danzansky, who had been the company attorney. Most recently, family was said to have been a factor in the decision to sell Genuardi Family Markets, 39-store chain based in Norristown, Pa., to Safeway for an undisclosed amount said to be as high as $600 million. The company was founded by five Genuardi brothers who sold the business to their nine sons in 1990. There reportedly were as many as 30 Genuardi involved in the company. "With families, you may have to reorganize the company because of multiple owners, (Jim Baska, retired chairman of Associated Wholesale Grocers, Kansas City, Kansas.) Ken Macey ended up selling his seven-store company in Salt Lake City because none of his two sons or two sons-in-law, all of whom were in the business, wanted to succeed him as CEO. Macey posed the question after he got several offers and "the multiples were so high that he had to consider selling." Macey, who is 56, wasn't ready to retire, but when none of the four wanted to take over, he went to his wholesaler, Associated Food Stores, Salt Lake City, and said, "You probably want to buy us so you can keep our business." Another factor in the decision to sell was estate taxes. Consider the big tax consequences for his family if both died while the business was still under his ownership. Deciding to sell was tough he had been very involved in industry matters; he was the first chairman. Macey still works for the company on a contractual basis, doing radio and TV advertising, and representing Macey's at conventions. (JAMES W. LEA)

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Family also is a factor at Westbury, N.Y.-based King Kullen, which is considered the country's first supermarket. The chain is owned by three families, all related to Michael Cullen, who founded the company. The families are the Kennedys and two branches of the Cullens. The chain instituted a succession plan about 1.5 years ago that is working very well. (Bernard Kennedy) At that time, Kennedy, then president and COO, joined John Cullen as co-chairman and co-CEO. The older generation decided they had to institute a succession plan, The Company decided to take a page from Nordstrom's and put in co-presidents." The two co-presidents and co-COOs are Brian Cullen, the son of the late James Cullen, and Donald Kennedy, Bernard's son. The former had been executive vice president, operations, and the latter executive vice president, finance/administration. (Bernard Kennedy) Rich Niemen Sr., the chairman and CEO of Niemen Foods, Quincy, has been involved in two family buyouts. Years ago, Niemen and his brother bought out their father. Then, in 1998, he bought out his brother. Niemen has four sons. Two are part of management. Rich Jr. is president and COO; Chris is vice president and CFO. A third son is an attorney who handles some company business. A fourth son left management, but continues as corporate secretary. There is a family stockholders' agreement. Succession depends on who is managing the company. The situation was less complicated for Norman Mayne, operator of two Dorothy Lane markets in Dayton, Ohio. Mayne has one son in the business. His son has picked up ownership through gifts from the existing corporation. In addition, his son has majority ownership of a new limited liability corporation. The corporation was set up for a new Dorothy Lane store being built. Carey Berger, a succession consultant advised Mayne. (Breaking the rules 2001, May).

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Succession Plan Steps The succession planning process begins by defining the company's vision and the individual job objectives that support that vision. (Dahlia Bradshaw Lynn 2001) Management must determine which positions need succession planning and define those roles. Companies should institute an ongoing plan of succession as a part of their strategic planning. The process of selecting for leadership consists of the following steps: 1. determining and defining the positions that will be part of the success planning program, 2. identifying leadership qualities, 3. assessing how many of the candidates identified as having leadership qualities are truly worthy of mentoring, 4. mentoring each potential future leader by more experienced personnel, 5. giving candidate the appropriate level of training to prepare him/her for higher positions, 6. promoting the employee after completing all formal education and analysis of results, and 7. giving future leaders their internship period. Defining Roles The process begins by determining and defining the positions that will be part of the success planning program. Executives should outline job descriptions for themselves and their leadership team. That would include department managers and group supervisors. The job descriptions should be forward-looking and take into account the strategic plan of the organization. Defining positions in this way is an important step in succession planning, because it gives potential candidates the opportunity to train and prepare for those future role requirements.

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Identifying Leadership In addition to defining specific skills needed for each position, the company must define what leadership qualities it seeks generally. The company can then select employees within the organization who appear to have those leadership qualities. Assessing Potential Management's next step is to assess how many of the candidates identified as having leadership qualities are truly worthy of mentoring. That can only be determined through a fullblown assessment process that includes psychological tests and interviews. Mentoring Each potential future leader needs to be mentored by more experienced personnel. Training The level of training needed to prepare a candidate for higher positions varies. One common objective, however, is to focus on weaknesses uncovered during the assessment period. Promotion It's important to be able to successfully gauge the right moment when a member of the management trainee team is ready to take on higher-level responsibilities. The employee should complete all formal education and the results should be analyzed before the promotion is made.

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Internship More often than not, new managers are put into positions without proper preparation for the role. The internship period is an important part of the careful process of selecting the best managers to carry forward the leadership process for the organization. This period gives the future leaders an opportunity to put their acquired knowledge and skills into play.

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Summary Planning for succession is not an easy task, but it is a critical one because it ensures that the company will have strong leaders ready to fill important roles as vacancies occur in successive years. Effective, proactive succession planning leaves your organization well prepared for expansion, the loss of a key employee, filling a new, needed job, employee promotions, and organizational redesign for opportunities. Successful succession planning builds bench strength. While the primary goal for this research was to gain additional insight into the most important issues facing private family firms. This information will enable consultants to understand the needs and complexities of private family firms, but it will also provide possible guidance for the direction of future research and education. Results showed that since very little public information exists regarding private family firms, investigating the characteristics and dynamics of these firms proved difficult for the academic researchers and management consultants. Our understanding of private family firms will continue to be based on educated estimates. The studies extend prior research concerning the perceptions of managers regarding the most important issues facing their firms. Contrary to the evidence gathered on publicly traded companies that shows that ownership issues are deemed most important to financial managers, the most important issues facing private family firms are more short-term in nature. Estate and succession planning became more important once operational and financial issues were addressed. However, the authors point out, the responses received from management of private firms must be viewed with caution due to the small number of private companies participating in research.

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Evaluation This study extends prior research concerning the perceptions of managers regarding the most important issues facing their firms. Contrary to the evidence gathered on publicly traded companies that shows ownership issues are deemed most important to financial managers, the most important issues facing private family firms are most short-term in nature. Estate and succession planning become somewhat more important once operational and financial issues are addressed. The results found in this study are robust when firm size, age, survey respondent, and family-firm status are analyzed. Support for commonly accepted family business statistics is found. (Deborah L. Murphy 2005) The examples of both McDonalds and Citigroup show that the theory of succession planning is wrong in one important aspect. Theory says that succession planning needs commitment and personal participation of CEO. But in practice, succession planning needs the commitment and involvement of the Board of Directors. Where succession planning for CEO is concerned, it is no longer the job of CEO, but the Board of Directors. The report in Workforce Management has correctly mentioned that the Board needs to obtain independent assessments of potential successors. This is where the McDonalds and Citigroup differ. Board of directors in McDonalds knows the capacity of its senior executives, while those directors in Citigroup do not. In contrast, Citigroup succession planning fails to yield a CEO in times of need. Gary Rich, a former head of HR for American Express in Europe, the Mideast and Africa, says "I don't think the board has a clear sense of what talent is beneath the CEO."[13] We can conclude that the Board of Directors has failed on all 7 steps of succession planning. They had not shown commitment to groom a CEO nor did they know what competencies a successful CEO for Citigroup should possess.

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References JAMES W. LEA. (1997, April). Make succession planning your most honest policy. Washington Business Journal,1. Retrieved from ABI/INFORM Dateline. (Document ID: 14075684). Breaking the rules. (2001, May). Progressive Grocer, 80(5), 94-96. Retrieved from ABI/INFORM Global. (Document ID: 733698491). Astrachan, J. H., & Shanker, M. C. (2003). Family businesses' contribution to the U.S. economy: A closer look. Family Business Review, 16(3), 211-219. Becker, B. M., & Tillman, F. A. (1978). The family owned business. Chicago, IL: Commerce Clearing House, Inc. Kesner, Idalene F. (1989, May). Succession planning. Credit, 15(3), 29. Retrieved from ABI/INFORM Global. (Document ID: 7069597). Dahlia Bradshaw Lynn. (2001). Succession Management Strategies in Public Sector Organizations: Building Leadership Capital. Review of Public Personnel Administration, 21(2), 114-132. Retrieved from ABI/INFORM Global. (Document ID: 760004801).