March 27, 2003

Passing the ownership baton

While often far from the minds of many closely held construction company owners and managers, the issue of who will lead the business when it’s time to pass the baton is an important matter that deserves attention.

Appropriate and well thought out succession planning and leadership training is extraordinarily beneficial in achieving the goal of transferring control from current ownership and management to the next.

But entrepreneurs with many construction concerns are not likely to have a plan for developing a new generation of company leaders, and are not typically prepared to equip a new generation with the skills needed to perpetuate the business.

In devising a succession plan and a leadership development program to support it, current company owners or managers must first identify potential successors and ascertain their interest in and ability to take over.

Owners need to determine whether the potential successors are currently within the organization or outside of it. They also need to find out what financial resources these potential new owners have, and what financial resources these individuals might need help in attaining.

Structuring a plan

Finally, a structure that allows for a meaningful and beneficial ownership and leadership transition should be established. The transition plan should be structured so that the transition is smooth and transparent, taking into consideration an exit strategy for the existing management team and owners — a task that cannot be performed overnight.

The transition has to be planned well in advance and proceed in a manner that achieves the goals set forth, allowing the company to ope0rate in a way that appears to the outside world as though the company hasn’t missed a beat.

This continuity is important to a contractor’s constituents. Clients will want assurance that a plan to avoid interruption of business is in place. Surety companies need to be comfortable with the transition, as do banks and other credit providers.

Most of all, a company’s employees must be comfortable with the transition. They need to understand how and why the change in leadership is taking place and to buy into the proposition.

A well-communicated transition plan will lay the groundwork for a transparent management transition.

Planning for that smooth transition requires forethought and adequate time, and so should be addressed sooner than later. If they haven’t done so already, construction company owners and managers should attend to this aspect of their enterprise’s future — in the present.

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Bruce Moorman is a partner with Grant Thornton LLP in Kansas City, a global accounting, tax and business advisory firm. For more information, go to www.grantthornton.com.

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