On a recent 710 WOR “Mind Your Business” broadcast, Yitzchok Saftlas (YS) spoke with guest, Dr. Richard Roberts (RR), Former Pharmaceutical Industry CEO, on generational business succession.
YS: What should a business owner look out for before implementing drastic changes in order to keep up with new technologies or major shifts in the marketplace?
RR: Change is neither good nor bad. It depends on what the change is, and what the merits of that change are. I remember my Senior Vice President Of Operations had around 400 people reporting to him and manufacturing about 2 billion tablets and capsules a year. I once asked him, “why do we do the process this way, and not that way?” He said, “because that's the way we’ve always done it.” I thought to myself, “I'm going to have to terminate him because he can't be forward thinking.” Now, if he had said, “well, we've looked at these four other technologies available, evaluated them, and here's the analysis of why what we're doing now is better,” great. That would have been a different story. But let’s say, you were running a brick-and-mortar bookstore, and all of a sudden, you saw online businesses, like Amazon, starting to increase in popularity. If you said, “this is the way we've always done it, we're not changing,” you're heading towards disaster. Someone who won't change is, in almost all cases, doomed. There has been a tremendous increase in wealth and income in the U.S. because of all the advancements in technology that have enabled people to produce more and more, making things less costly and more accessible to the public. So, as these things change and get bigger, we need to analyze every one of those changes. Some transitions are good, and some are not. Your success or failure as a CEO is going to be based on your ability to accurately determine that.
YS: What are the key points someone must be cognizant of when transferring leadership to the next generation?
RR: Number one, they have to be capable. If you transfer leadership to your child who’s disorganized and isn’t prepared for the job, you're going to lose the company. Eventually, it's going to spiral out of control. Number two, they need to show respect to everybody. When I took over as CEO at my family’s company, when the sirens went off at the end of lunch break, I held the door open for all of the hourly workers. I didn't do it to deliver a message. I did it because I respect them. They're good human beings. They're working for a living to try to support their families. They're totally deserving of our full respect. Number three, you need the next generation to work harder than anybody else. A leader needs to lead by example by demonstrating that they work hard. Number four, the next generation has to be highly credentialed. Now, credentialed doesn't necessarily mean that they have a medical degree or a doctorate. It means that they've shown that they have the ability to work hard, build up the company, and be successful. If you put in someone who has no credentials and never accomplished anything, you'll find that the people that are the most talented and the most capable in your company will leave for other jobs. Headhunters are calling your talent all the time, and if those workers decide to leave, all you'll be left with is the ones who couldn't get other jobs. That's going to be a drain of talent from your company.
YS: When transitioning a business to the next generation, is it better to keep using the strategies or processes that were developed over the years or to start from scratch?
RR: If the new generation comes in and says, “there’s a new sheriff in town and we’re going to start from scratch,” you need to remove him from the company immediately. It's unlikely that he knows what he's doing. But he may have enough arrogance to think that he does and then run the company into the ground. There are two extremes to businesses, each with their own types of processes that the incoming generation needs to fully learn before implementing any changes. There's the smaller mom-and-pop companies (such as a person who owns a small store), all the way up to the larger, sophisticated corporations. In the smaller mom-and pop-businesses, it’s the entrepreneur that is doing most things, working like a maniac, and paying all the bills. In a large corporation, you have different levels of signatures required as you get to higher and higher amounts of money. So, when I first joined my father’s company, I would sign off on a check for $500, but towards the latter part of my career, I wouldn't get involved in anything less than $1 or $2 million. And to make sure that nobody's absconding with company money, you also have process control and an accounting department auditing and putting those controls in place. So, your processes are different depending on the scale of the company. For example, when we tried to do business with some of the larger pharmaceutical companies, in order to make a decision, they had to have sign offs from the legal department, the regulatory affairs department, the marketing department, the finance department, and everyone else to actually sign off on the deal. So, the bottom line is, whatever your processes are, when this new generation comes in, they better not say, “we're changing everything right away,” because you're likely going to end up spiraling out of control. On the other hand, that doesn't mean that changes don't need to be made. It depends on the merits of what changes they want to implement.
YS: How should a business owner navigate transferring leadership to a new generation whose morals, values, or leadership styles may differ from their own?
RR: First of all, before you turn the reins of a business over to the next generation, you better make sure that they have the correct values for the protection of the business, of the employees, and even of themselves. You could have some new guy that comes thinking that he can do a bunch of dishonest things, and then gets himself into criminal trouble. You could have someone that is not at all respectful or sensitive to the needs of the employees, and then gets himself into labor trouble. So, you don't turn the reins over to someone until they've demonstrated those values for a long time and proven that they can do it. On the other hand, you can't just assume that the next generation might be lacking the values that the first generation had. In my case, it was actually kind of the opposite. I was the first Orthodox Jew in the family in four generations, and there were many things that I simply would not do or ways that I behaved that were radically different from the way that the family business was being run before me. When I joined the company, there were multiple gender discrimination lawsuits against the company. People would come up to me and make off-color jokes or use curse words, but I wouldn't respond. I would just move on to the topic that had to be addressed. When you're President or CEO, people look up to you. From a psychiatric perspective, there's even some transference going on and you end up as a somewhat parental figure. You have to set the right tone. So, remember that you can’t just assume the next generation has lesser or worse values, it can sometimes even be the opposite.
YS: How can new leadership deal with the delicate balance of managing employees who have already been at the company for years prior to them?
RR: It depends on the types of employees you’re dealing with. When you’re looking at hourly employees and people on the lower end of the salary, their main concerns are generally job security, pay, and respect. And that's critical, because you might have a new kid that comes in and thinks that because he's the son of the original boss, he can now treat people disrespectfully, which just shows a defect or deficiency in that person's value system. For those employees, it’s really just about giving them respect and security. But for middle to upper management, they’re also going to be concerned about opportunities for career advancement. So, for them to see that the dynamic, smart, and capable entrepreneur that started this company has now turned it over to their child, who is now tearing the place up and making a big joke out of everything, that will make them feel that the stability of the company is poor. And there might also be resentment from any employees that were looking to advance, only to see the boss’s child suddenly get that position. So again, as a business leader, you have to make sure that the next generation that comes in has proven themselves. And one way to do that is to have them work up through the ranks and make sure that they actually perform at each stage. They don't have to go on the same 20-year career path, but if you just put them right at the top, that's a big mistake.
YS: What are your final tips for bringing a family member into your business?
RR: You need to be aware of the risks before deciding to work with family. There are so many stresses and complications that can result from that kind of relationship. The risks are huge. If you bring your child into the business, say they’re 35 years old, and you're still making the decisions, that child might feel like they are being undermined or emasculated. They want to be treated like a grown-up, but you might not be ready to hand over that responsibility. So, in general, it's better not to put a relative into the business if you can help it. Especially if they're not so capable. The stakes are high because you could end up destroying your relationships with your family, which are really the most valuable things that you have in this world. But people do it, and sometimes it works. For Orthodox Jews, there's a very strong attitude or value that’s instilled our children from when they're about two years old called “Kibbud Av Va’Em (honoring your mother and father).” For the most part, these kids don't have the same kind of resentment towards their parents that you might see in the secular world. They value their parents, value their grandparents, and value their elders. So, bringing in a child with that kind of respect stands a better chance of success than in more general cases. But there are plenty of cases where the next generation came in, worked together great with the previous generation, and accomplished great things.