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 Ron Hortel, along with his partners, built a $60 million agency from scratch in only 18 years-then saw it seriously decline shortly after his retirement.
The cause of the problem was a mystery. He seemed to have done everything correctly. He had a team of managers in place . He had secured funding for the buyout. He had even stayed around for the first two years to help the new team adjust. But the agency failed just the same.
Oh sure, Ron had some concerns when the new team took over. Team members had made some costly mistakes, and there were times when they didn't seem to understand what was important and what wasn't.
Finally, Ron decided the team had to find its own way, just as he had. That was when things grew worse.
Without clear leadership, expenses increased, the team lost key accounts and backlogs developed. For the first time, employees left the agency. The new management team was forced to use expensive lines of credit and short-term loans to cover expenses. Eventually they sold out to national broker for a fraction of the agency's former value.
Unfortunately, the scenario of Hortel's agency increasingly is being played out in small, mid-sized and large agencies across the country. It's partly a matter of personalities, partly the absence of real planning.
Classic entrepreneurs like Hortel are hard-working risk-takers who make decisions easily and have little patience with the snail's pace at which others choose to make decisions. The same qualities that make such entrepreneurial agents successful keep them from developing and implementing a transition plan for shifting management responsibilities when they retire.
During his pre-retirement years, Hortel had carefully arranged to have stock transferred, but he had failed to transfer responsibility and authority for running the firm. He had failed to relinquish control of his former responsibilities and discouraged the team from participating in growth and profitability planning for the agency. Finally, he gave them no feedback or constructive criticism, so when the time came for them to run the firm, they were unsure of their roles and unskilled at managing.
Hortel's decisiveness left everyone dependent upon him to make decisions. His impatience at meetings meant they were rarely held, and managers had little chance to participate in the management process. Because Hortel wanted everyone to be happy, he seldom confronted employees, so conflict was rarely resolved. The agency worked fine with a strong entrepreneur, but fell apart with managers who had never learned to do all the things that came naturally to him.
Most transitions don't have to be this painful. To maintain a healthy and profitable organization through the transition, it is important that you address four key elements: planning for the transition, delegating authority to key managers, creating a good communication climate, and dealing with conflict, rather than avoiding it.
PLANNING
Before the torch is passed to the junior management team, it is important to understand how the authority and responsibility will be transferred. A successful transition results in a successful 'end state.' En route from the present to that end state, certain events must take place. Thus, you must describe the ideal outcome, what the present situation is and what actions must be taken to reach that end state.
Some of the most important decisions involve the people who will be the key managers of the company. You need to decide if these people have the skills and abilities to effectively manage the agency. The wrong people may be in the wrong spot, or people may have been placed in important positions for the wrong reasons. Some executives have tried, for example, to give a management role to everyone who owns the company, though some owners are better suited to other roles.
Transition planning is often a difficult, time-consuming job. Sometimes agencies underestimate how much needs to be done and fail to allow enough time. Others have balked at making the hard decisions on whether they had the right people to carry on the firm. And some agencies had found that they had not properly trained or motivated the new management team to assume their roles.
DELEGATING AUTHORITY
It is important for the senior executive to realize he may need to alter his autocratic or solitary management style. Making all the decisions or tightly controlling the organization will seriously hinder the ability of the new management team to learn and practice the skills they will need to run the agency.
An imminent transaction calls for a shift to a more participatory management style. Decisions have to be made as a group, rather than individually. Each member of the executive must assume responsibility for asserting his own opinions and for bringing issues to the table.
In a successful transition, the principal makes a conscious effort to delegate responsibility to the junior executives and to make sure they have access to all information and resources. While giving up control may create tremendous anxiety in the typical entrepreneur, such participation helps develop management skills in younger executives.
COMMUNICATING
The autocratic management style often discourages communication. Decisions are usually made by one person, so managers feel intimidated about expressing their opinions or challenging ideas. In addition, many entrepreneurs are also poor listeners and impatient about the amount of time good communication requires. Thus, the management team doesn't fully understand the values, beliefs and norms that made the organization successful, so they cannot carry on that tradition.
During transition, it is particularly important to schedule and regularly hold meetings and to meet one-on-one with key managers to review their progress and encourage open and honest communication. The most important skill you'll use during the transition is listening. You'll have to work hard to understand other points of view, to understand other points of view, to understand the real issues they are addressing and to make sure the managers understand what you expect from them.
MANAGING CONFLICT
Because of the change in management approach, there inevitably will be conflicts. People on both sides will have frustrations, will be impatient at certain times and will say things that upset or disturb others. It is important that members deal with conflict when it occurs.
Some people find it easy to confront others, and do it naturally and constructively. Most people, however, fear confrontation and try to avoid it. Such avoidance leads to problems like gossip, sarcasm, and resentment.
The goal in successful confrontation is to be honest, yet objective; to listen to the other person's side, and to work at producing a positive outcome while keeping the relationship intact.
A good rule is to end an honest and successful confrontation on an upbeat note. Avoid personalizing the situation and you'll all come out ahead.
The effective and timely transition of management authority is one of the most critical elements in the perpetuation of an agency. Yet the experience at Business Management Group shows that too often an agency will lose momentum, stagnate or bring about its own demise precisely because the management transition process has been overlooked.
Developing an honest, workable transition plan well in advance of the principal's retirement assures a smoother transfer of power and the continued growth and expansion of the agency. It permits the younger principals to influence the growth, while allowing the senior principals to retain control of certain key elements.
EIGHT MISTAKES MADE BY OUTGOING PRINCIPALS
1. Underestimating the complexity of the problems and not developing a transaction plan.
2. Creating management positions without delegating authority.
3. Not communicating with managers during the process.
4. Unintentionally not supporting the managers.
5. Avoiding conflict.
6. Giving management responsibilities to everyone with ownership in the company.
7. Placing the wrong people in management positions.
8. Failing to communicate risk-taking philosophy.
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