Succession Dilemmas

When Construction Companies Outgrow the Founder

Case Study

The founder and aging CEO of a fast-growing construction company recently asked me to help him with his succession problem. He summed it up with one memorable sentence; “What in God’s name is the matter with this younger generation?” 

This contractor ran his organization with a strong hand. He worked long hours and had the ability to juggle numerous tasks and responsibilities. He had a strong loyal team to back him up and carry part of the load. But the serious decisions were made by the founder himself. “These boys can sure build,” he said, “but ya gotta watch them with the money and the relationships. They know how to lose money and offend everyone else in the process, that’s for sure.”

Widely-Held Core Belief

His thoughts were similar to most of the construction company founders I have met; no one can do what they do. They talk about finding someone to take over when they retire but they don’t really believe anyone can replace them. This belief is a major cause of widespread succession problems in the construction industry.

Small to medium sized companies put most of the construction in place in this country. Since many were founded by relatively young people, many construction companies are still being managed by the original founder 30, 40 or 50 years later. These companies have often grown from start-ups to substantial, complex organizations. When a construction organization doubles or triples in size, it is no longer the same company. To continue successfully, it requires up-to-date management methods like delegating authority for example. The test of delegation of authority is when the person delegated to is allowed to make mistakes. Contractors frequently resist this suggestion because mistakes cost the company money. Inability to delegate causes the “no real authority” syndrome, generating excessive management turnover in family owned and closely-held companies. In which case new managers are given only limited authority and therefore, are never really able to assume control, resulting in little or no potential for a successful succession, creating succession dilemmas.

Other Anti-Succession Impulses

The core belief that “I can’t be replaced” is often accompanied by additional “anti-succession” biases that prevent the succession dilemmas.

• Legacy managers believe that management skills are simply the leadership skills they possess. To a certain degree, they are correct, however modern managers must combine different analytical skills and thought processes and have the patience to sacrifice shortcuts for long-term optimum results.
• Resource allocation, personnel development, and strategic planning are examples of modern management skills sometimes ignored by founders. However, these skills are required in advance of growth or succession so that they are in place when needed.
• Construction contractors running fast-growing companies often find it difficult to know when they have reached the limit of their managerial effectiveness.
• Strong entrepreneurs often surround themselves with weak managers (yes-men) so replacing top management personnel is particularly challenging especially in family owned and operated enterprises.
• The point at which growth will outstrip top management’s ability is not easily predicted because the threshold is different for each management team.

Irreplaceable

The beliefs and resulting biases above create an environment that inhibits effective succession planning in small to mid-size contracting companies. Our industry must recognize this natural bias and work to evolve beyond this limiting belief system.

After decades of succession planning I find founders willing to take off the blinders to find and empower their successor when I alter the language to say; “no one can replace you, but someone must succeed you if the company is to continue in an ever-changing business environment.

Read More: All Management is Change Management and Overcoming Resistance to Change