Changes of ownership, changes of the management board and generation change in a company

This is not a complete guideline of how to manage changes of company ownership, changes in the management board or generation change. We will discuss how to set up a process, how to manage this situation and which options should be taken into consideration.
The most common change in company ownership is done by selling a company.
What are the main differences in selling a company?
1. The share deal: In this case, the company’s shares or part of the company’s shares are changing ownership. The company continues with its business and its liabilities for its business, as done in the past. These deals are done to clean investor portfolios, to merge companies to get the new company a more complete portfolio or sometimes also to extend market share. In the post-merger phase, very often the management structure will also be adapted. This will normally be done with a post-merger integration (PMI) project.
2. The asset deal: With an asset deal, the company sells its assets or parts of its assets. These deals are often done because the buyer is not ready to take liabilities from the company he or she buys or only a part of a company is sold, which makes it often difficult to share its liabilities. Asset deals provide a lot of possibilities to shape a necessary restructuring process or to enable a good PMI project. The problem with an asset deal is always that the old company, which is now out of assets but still has liabilities, then has to be liquidated or sent to insolvency. A lot of legal requirements have to be considered for such a process.
The possibilities and needs involved in shaping a company sales deal are important. Shaping the deal in a good way opens for the new company the possibility to place itself better in the market or to make its existence further on possible. There are some Founds in the active market that deal only with this kind of company, which they are bringing back in more healthy conditions to the market. This is a hard job, but with the right management team, which can properly handle these kinds of change processes, this business model guides to good profits.
This brings us to the next subject: management change in the board of a company. In the case of company sales, there is normally automatically also a change in the supervisory board. This new supervisory board defines and decides upon a new or changed board of management.
To keep companies healthy, to develop them in a good direction and to assure successor availability, changes in the board of management in a company are necessary and should be planned accordingly. Most of the contracts of management board members are given for a period of three to five years. This assures that the supervisory board has to decide from time to time about every management board member. Let us make a small list of reasons why management board members should be changed from time to time. This list cannot be complete, but it shows the situations that should be taken into consideration:
1. The management team is not playing as a team together. This will provoke a situation in which, for strategic decisions, there is no consensus in the team, and so these decisions can be pushed by the CEO only.
2. There may be performance issues. If a board member cannot deliver the agreed-upon target results or is not capable of bringing a company back to profit after a certain period, he or she has to be changed.
3. After, for example, heavy restructuring phases, a lot of uncomfortable decisions could have to be made, which could make it difficult to work together afterward. In this case, a management change may be necessary.
4. Sometimes it may be necessary to make changes in the management board to bring new ideas in. Especially companies with long-term continued good business have the risk of losing track. Only to emphasize: we are the best! Makes blind for changes in the surrounding.
After these examples of why change is necessary, we should now think about what may be the best source for our candidates. We can get candidates from inside the company or from outside the company. From inside the company it will always be a candidate who will be assigned to the management board for the first time, but the internal candidates have the advantage that they know the conditions within the company quite well.
External candidates can be from the board of another company or can provide special skills, for example, MBA educations, a specialist in some science fields and so on.
The perfect candidate will be someone who is accepted from the supervisory board and the board of management.
The management board is like a good meal: The right mix makes the difference!
Choosing candidates for a board of management, we have to consider their mindset for this task. The board of management, and in the end the chairman of the board or the CEO, is responsible for everything that happens in the company. The board of management has all the power to decide on changes in the company. They must be ready to do so.
Until now, we have discussed only companies, which are composed of shares, and the organs (supervisory board and annual general meeting) of these companies are deciding on data. This becomes somehow more complex when it comes to family-owned companies. It starts already with the problem that the owner often for 20 to 30 years (one generation) stays in charge of all board decisions. The whole company is relying on his or her intelligence, decision-making skills and capability to change. This is a high risk for the development of a company.
My proposal for this kind of company is always to put at least the organs for a limited company in place. Try to define criteria at which a wider circle of people will participate in decision making.
The same is to be taken into consideration for the successor planning. The children of the owners do not always have the best skills to continue the business.
My advice is this: Children of company owners should have at least 10 years’ experience in another company and should have developed in the external company to a management position. If this cannot be fulfilled, the organization of a limited company should come in force.
This article is a reflection of my experience and not a scientific analysis. I would be happy to discuss the aforementioned subjects.

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