BLOG: Ownership transition is not management transition

//BLOG: Ownership transition is not management transition

BLOG: Ownership transition is not management transition

The owner looking to sell is often in a turmoil of emotions. There will be many reasons why now feels like the right time to sell, but they are not always based upon the needs of the business. The decision may have been the result of age, infirmity, marital breakup or even boredom. If there are multiple family shareholders, it is quite likely the decision is precipitated by a family dispute, possibly over a business decision but as likely as not by a disagreement over dividend policy with inactive family shareholders.

In such circumstances, there is a temptation to see retirement and selling the business as two sides of a single problem. However, it is vital to maintaining a clear distinction between ownership succession and management succession and it is almost always a mistake to try to move on both fronts simultaneously.

There is a natural tendency to look on the transition to employee ownership as a new beginning which needs new attitudes and new managers. That is true when looked at over a long time-scale, but it is foolish to try to make too many changes at once. As we saw in the previous two blogs, transitions are scary and the need for colleagues to feel safe always trumps the need for excitement during the early stages of conversion to employee ownership.

A common cry in a successful conversion is that on the day the business became employee-owned, everything felt just the same – even though there may have been the popping of champagne corks, nobody could detect the change. This is sometimes interpreted as a failure to prepare the workforce for the transition (and indeed that is sometimes the case) but it is far more likely to be a sign that the transition is being handled smoothly.

As with most things in life, the best advice is to take careful stock and plan well ahead. Some of the most successful employee ownership conversions have happened when the owners decided years in advance that they were going to exit, stepped back from daily management and appointed a new CEO to take over and decide the future direction of the business. They then transferred ownership once they were sure that the new management structure was completely stabilised and the relationship between the new CEO and the workforce was working well. However, few of us are as well organised as those owners and it is far more likely that once the owners decide they want to take some money out, it will be too late to change senior managers before the change in ownership. In reality, most conversions to employee ownership will result in ownership change before management change.

As we saw in the previous blog, the continuing presence of the founders is necessary to help managers change their relationship to the new employee-owners. If management and ownership change at the same time, there is no space for the new ownership relationship to develop and there is a significant risk that the post-transition board will simply slot into the roles played by the founders and behave as if they are the new owners. This results in deeply unhealthy attitudes among the board which may see itself as dispensing largesse to employee co-owners rather than being accountable to them. Such an attitude has several deleterious consequences which I will discuss in the next blog.

Dr. Paul Sawbridge is a Founder and former Chairman of Alfa Leisureplex Group, a family-owned hospitality and travel business employing 670 staff which converted to a 75% EOT in 2015.

By | 2019-02-11T11:57:27+00:00 February 11th, 2019|News|Comments Off on BLOG: Ownership transition is not management transition

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