Subject: Succession Planning and Leadership Transitions

However, Researchers Find Many Don’t
by: Dr Anthony Perrenoud, Ph.D., University of Oklahoma

Unlike Fortune 500 corporations, construction is still a vast collection of privately-owned, small, medium-sized and large companies founded through the singular efforts of entrepreneurs and headed by a contractor who is the heart and soul of the company. This structure explains why the construction industry has done little to address the executive succession problem that confronts all businesses but particularly plagues the construction industry.

Research confirms that only 50% of family-owned construction businesses survive leadership transitions from the first generation to the second generation, and even fewer survive to the third generation. One of the main causes of this transition failure is the apparent inability and reluctance of construction company founders to replace themselves. With the majority of construction companies being closely-held or family-owned, it is critical that these companies select suitable candidates to replace the outgoing executives. 

Executive succession has been researched considerably across multiple industries, but despite the importance of succession planning, little research is available on how to improve leadership transitions in the collection of companies that make up the construction industry. 

 Here’s the Problem

  • Many executives of construction companies are also the founders, and they typically lead their companies for 30 to 40 years.
  • Their considerable experience and devotion to their firms is a major factor in their company’s success. Some believe that the founder is the most important individual in a construction company and is not easily replaced.
  • Construction companies rely heavily on their leaders’ direction to ensure their businesses remain sustainable.
  • The unavoidable retirement of these leaders has the potential to cause a substantial impact on many construction businesses.
  • Many construction companies have a very limited pool of potential successors, none of which may be an ideal choice. 
  • Replacing experienced, devoted senior executives requires more than merely selecting a capable successor; the new leader must also align with the company’s values, work ethics, and processes, which are deeply influenced by the founder.
  • Experienced construction entrepreneurs are a scarce resource in today’s building industry.

What Can Be Done?

The five most frequently applied practices are:

  1. Analyzing and selecting high-quality candidates.
  2. Securing senior-level support.
  3. Preparing a succession plan.
  4. Maintaining a high level of communication.
  5. Developing and communicating well-defined responsibilities. 

Who is Going to Replace You?

Who is going to take your place? Why have you chosen him/her? Does your replacement have the depth of experience you brought to the job? Is that the most important consideration? If not, what is? Did your senior management team participate in the selection process? Do they support your choice? Have you asked them? Do they communicate well with your replacement? Does your new CEO fit into the culture of your company? What is the culture of your company? Do your bankers and surety support your choice? Are they familiar with your candidate? Have they already done business with him/her? Does your replacement have an ownership interest in the company? If not, why not?

Now Is the Time

These questions and many more are the backbones of any well thought out succession plan. Take a look at the attached research, and if you have not already developed a well thought out succession plan, the thoughts and principles discussed there is a good start. If you and everyone else in your company don’t already know who will replace you, you are already facing an impending crisis that research shows could threaten the very survival of your firm.