Dynamic management succession - an opportunity in hard times

Company employees: today co-entrepreneurs, tomorrow sitting at the helm

The Steinbeis Transfer Center for Rehabilitation and Financing has been working in partnership with an interdisciplinary consulting team called “IBU-NachfolgeManagement” (IBU Succession Management) on a concept designed to help owner-managed companies to overcome the challenges facing the business. Their “dynamic management succession” model merges the principles of an employee buy out with direct staff involvement. The result: the workers start by participating in the company before taking to the helm themselves.

According to an ifm survey, 47 per cent of all owners of family business are older than 50. This means that more than 700,000 family businesses in Germany will soon need to think about who will take over next. But only 48 per cent of those companies have someone in the family who could take over. So more than half cannot arrange a succession within the family. Based on the experiences of recent years and the current financial crisis, it is agreed that most of these companies will not find a buyer. The ifm suspects that 89 per cent of these businesses may have to close. If that would become reality , around 1.7 million jobs would completely disappear. So even if it’s a complex process, it’s probably worth looking at the “dynamic management succession” concept, not only for the sake of the company, but for society overall.

“Dynamic management succession” is a process involving three phases that can last between one and 15 years. During the first phase, using a “participation model” the employees of the company can become minority shareholders . In parallel to this, certain employees undergo training to prepare them for future management roles. During the second phase, employees take on more and more shares in the company while the existing owner gradually starts withdrawing from everyday business. How long this phase lasts depends on the aims of all parties. It finishes – and the next phase starts – when the company passes entirely or partly into ownership of the workers who have bought shares in the business. By this point the former owner has handed over management of the company entirely and can provide input on an advisory basis. The chief motives of owners to deal with this concept are the self-defined date of retirement and the capital deepening of the company. But they should be aware, only if a company’s working atmosphere is based on partnership, employees are willing to become copartners.

For many businesses, “dynamic management succession” basically means introducing a new business structure, realigning information sharing and communication policies or changing decision-making processes. Therefore they need support. Thus a group of leading experts formed an interdisciplinary consulting partnership (IBU), in order to provide advice in the underlying principles of this succession model. As a member of this partnership, the Steinbeis Rehabilitation and Financing Transfer Center is responsible for the financial field. IBU offers an comprehensive consultation by not only involving specialists in finance, tax and legal issues, but also experts on HR issues. The advantages are self-evident: this intercoordinated teamwork is highly efficient. Above all the company owner has only one contact person to deal with. This person acts as the coordinator and project manager.

Employee buy out (EBOs) and employee participation can also be an option for reorganization or restructuring. But this needs to be considered carefully. The main focus should remain the company succession. But regardless of this, an employee involvement (in an appropriate manner, matched to the company) is in principal a useful instrument of modern entrepreneurship because it often results in a unique passion proposition which strengthens the business’s standing in the market – and cannot be copied by competitors.

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