The labor force participation rate for those 55 and older is the lowest it has been since April 2009, at 39.8 percent. Millions of baby boomers have retired from the workforce during the past six years, and while we’ve been covering the importance of passing on their skills and having succession plans in place for years, the time has come to execute the plans. Every month more than a quarter-million Americans turn 65. Is your company ready to let them go?
I interviewed Joel Freimuth, founder and CEO of management consulting firm Blue Pearl Consulting, to discuss how companies can better prepare themselves to have Gen X and Gen Y take over for boomers. We discussed the obstacles companies often face, how to prevent them and how to make sure all the right learning procedures are in place to avoid any future knowledge gaps.
From your experience, how do baby boomers and Gen X feel about passing the reins to Gen Y?
Freimuth: Reluctant. Baby boomers, in particular, have a tough time letting control pass from their generation to the next. However, Generation Y is really a different animal and so Gen Xers are suspicious of them as well. The primary difference is their comfort with technology. Gen X and the baby boomers would never attempt to do business from behind a computer screen, don't discount "face time" at the office and generally adhere to very common business dealing practices. Beginning with Gen Y, there is a seismic shift in attitudes toward face time, casual dress at the office and other formerly inviolate principles.
What about Gen Y’s perspective? Do they feel ready to take on higher leadership roles?
Freimuth: Gen Y feels ready to take on leadership roles. They feel that technology is their bulletproof vest. If they work in a family firm that doesn't emphasize technology, they especially feel that their not being in control is holding back their growth. We work with a vet practice. It's a father-daughter-run practice. The daughter wants to invest thousands of dollars in technology. She wants to install cameras so that you can see your pet from your computer. The father doesn't appreciate this innovation and just sees the amount of money being spent. The daughter feels that this feature will attract new clients to the practice, but is unable to implement it because her father isn't ready to give up control. In such an environment, the daughter feels stifled, the father is frustrated and it has significant consequences. The staff isn't sure what direction the practice is going and the clients ask for one vet or the other; which means they don't view the practice as a single entity and could look for a new vet practice when the father eventually retires. We are also working with an explosives manufacturer that is trying to grow. In this situation, the father is a chemist and doesn't want to relinquish control to his son because his son is not. His son, however, has spent 10 years in the business and is well-educated. He wants to use technology to track metrics differently than his father does, but his father isn't open to the idea. In this case, the father recently made it known that he wasn't ready to hand over control if all his son was going to do was spend money on "fancy software." The son, frustrated, has made it known that he will be leaving the family company to join a consulting company. Now, the future of the company is in doubt.
Gen Y isn't always ready to take on leadership roles. Their reliance on technology and their impetuousness means that they often spend money recklessly. Their emphasis on email means they don't form the same bonds as their parents did with their customers and so relationships are often more fickle than they could otherwise be. Gen Y is also the first generation to be seemingly all consumed with the idea of get-rich-quick company ownership. Gen X and boomers understand that building a business is a lifetime endeavor and there are serious sacrifices to be made. Gen Y will learn, but it will be a tough lesson.
As a result of all of this, what are some common issues involved when transitioning leadership from one generation to the next?
Freimuth: There is a legal expression that, when forming a contract, the two parties must have a "meeting of the minds." That is the most common issue involved in transitioning leadership. There is no meeting of the minds. The outgoing generation is focused on legacy or impact. They also are in a stage of their lives where they are more risk-averse than before. They would rather protect what they have and know they have enough for retirement.
The younger generation is tougher to group together. Many don't want to do what it takes to run a company. They'd rather sell it and vacation in Monaco. They generally have inflated ideas of their company's worth and the ease with which they will sell it. They also have a "flip it" mentality in which they think they can make some cosmetic changes that will up the company's value and they will sell at the higher value before anyone figures out the changes had no impact on company performance.
For the younger generation to accept leadership, they must put the older generation at ease. At Blue Pearl, we recommend that the younger generation engage their parents in conversations about leadership. We also recommend that the younger generation put together various goals for the company. Once the goals are shared with the parents, they should also build enough of a strategy to each goal that the current owners can see the new leadership takes the company and its future seriously. But the issues aren't all on the younger generation.
The boomers don't want to leave, and that's a huge problem. They begin the transition, setting certain expectations and then renege on those promises. Customers don't know what to think. They call the younger generation with an issue. The next day, the older generation is calling the customer telling them that the way their child handled the situation is all wrong and they don't understand the relationship or the business. Certain key personnel begin to adjust to the new ownership, only to be tossed back into the old regime. This causes a type of "transitional fatigue." We've watched people who have never worked at any other company suddenly resign because of transitional fatigue. The chain reaction from that is very serious. Companies need to have clear leadership. When boomers don't go, they are destroying their legacy instead of building it.
What’s the solution? How can we smooth the transition?
Freimuth: While each case is different, the general answer is better communication. The younger generation has to work to get their parents to see them as leaders. They have to demonstrate they have vision, they have the ability to execute on that vision and that they are sensitive to the factors that their parents worried about, even if they don't ultimately make the same decisions.
Boomers need to understand that founders are a breed all their own. They cannot look to their children to be just like them. It won't happen. Boomers need to understand that, for the company to survive, it will need certain processes and standard operating procedures that it didn't need under their leadership. That is a sign of maturation for the company. Boomers also need to know that their comes a point where their presence is more harmful than beneficial. Spouses of boomers may be the best person to convey that message.
There’s a learning angle here. We need to pass on the knowledge and wisdom from one generation to the next. Any tips on how to do that?
Freimuth: This is a great question. At Blue Pearl, we spend a lot of time contemplating this issue, and there are no easy answers. There are two obstacles to answering this question efficiently. First, there is a knowledge gap on both sides of the table. Second, there is an issue of time.
To the first point, boomers, especially founders, run their businesses primarily on the strength of their charisma and passion. This means that they are less administratively structured and more successful by sheer force of will. Gen Y, on the other hand, spends time in front of the computer looking at numbers. Whereas boomers and Gen Xers were more likely to walk the factory floor to get a sense of the state of their company, Gen Y is more apt to rely on various reports. Both sides have merit, but both denigrate the other.
To the second point, people in their prime and in control of a company rarely want to think about letting go of that control. Therefore, while they may put their kids through a rotational program or otherwise expose them to the different areas of the business, they don't consciously teach them leadership and deal-making, two key skills for running a business. If you've worked in your family business from the time you graduated college until you're 33 or 34 years old, you would have more than a decade of experience. Since you don't have to "pay dues" in the way others do, your experience is lesser in many ways. If your parents don't make a serious effort to teach you how to run the business their way, then how can they be surprised when you don't?
To address both issues, and many more, we recommend a long-term, complex shadowing program (which involves more than just hanging around). Running a business has only a few aspects. Manage the operations so as to minimize cost, maximize output and keep products at a certain quality level. Manage the sales so as to maximize market penetration, maximize margins and create, where possible, recurring revenue. Manage the intangibles so as to keep employee turnover low and to maximize your own quality of life.
Boomers are generally great at the sales. They are sometimes good at managing intangibles. They are rarely good at managing internal processes. So you shadow the owner at as many customer meetings as possible. You shadow the chief engineer or equivalent for internal processes. You shadow the administrative assistant for the intangibles. Shadowing means that you spend enough time with them so as to be able to perform many of their tasks. This gives the younger generation the experience of truly walking in the other's shoes so they can experience what those people experience. This is not to work those jobs — owners’ children are never treated the same as others no matter what their title is — so this program would be to observe as closely as possible to absorb feelings. What change would the plant manager make in order to run things better? What does the admin have the pulse of that management needs to respond to? How do the customers want to be treated? This is not about being able to perform a function. It's about learning to read a company. In the Gen Yers role as midlevel executive, they can continue to rotate through the company, but they will begin to see the company differently and understand the bigger picture more explicitly.
