How to Manage Business Succession - Passing the Torch

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Succession is a tricky area for most businesses, especially so for family businesses and for businesses where the founder has a close association with the brand, for example, fashion houses and high profile restaurants. Almost exclusively a fashion designer’s business bears the name of the founder and is extremely closely associated with that individual.

Appointing a successor seems to prove one of the most difficult exercises for an outgoing fashion house overlord. It is not entirely due to vanity which makes this such a complicated subject; there are sound business reasons for being so circumspect about appointing a new leader or an heir apparent. Filling the founder’s shoes must be carefully managed to avoid damage to the brand as the
founder is invariably inextricably linked to the brand.

In the fashion world, it seems it frequently proves to be a challenge too far, with many of the famous names staying on long after normal retirement age. Giorgio Armani returned to his drawing board in 2009 following an illness that would have sent a lesser mortal into comfortable retirement with no regrets. When asked about succession he will only say the his empire will be in the hands of “the faithful”, a group of trusted people which includes his nieces and nephews, most of whom are of retirement age themselves.

Oscar de Renta worked to the end of his life and Ralph Lauren appointed a successor at the age of 75 only to snatch back the reins 15 months later. Valentino’s successor lasted less than a year. The fashion industry is littered with short term appointments ending abruptly and acid remarks from the exiting incumbent. It seems that the torch is not so much passed as wrenched from the hand when it comes to letting go and settling into retirement. Pity the poor designer who has to follow a still living iconic designer who will, of course, be breathing down his or her neck.

Since retirement comes to most people and certainly the final exodus comes to us all, it makes a great deal of sense for the great leader to be closely involved in the choice of successor and to lend his or her support to ensure that the empire that has been built up does not crash and burn once the founder steps down. A good choice of successor reflects well on the founder as it reflects their continuing commercial judgement.

A family business can have a problem if it has been managed by simply relying on the next generation of family members without regard to competence or commercial ability; this may work whilst there is a guiding hand but once that is removed it can be a disaster. Simply because a person’s family name appears on the headed paper it does not mean that they are necessarily the best person to lead the firm. The question of ensuring the successful and profitable continuance of a business during the crucial transition of founder or significant leader’s retirement should be planned for a considerable time in advance enabling any problems, issues or potential clashes to be managed before anything has the potential to impact on the business. Ideally, the transition should be seamless and the workforce, as well as the professional service advisors of the firm, should be well prepared and comfortable with the successor.

AUTHOR: Giambrone Law

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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