The massive wave of boomer retirees is pressuring leaders from the manufacturing industry to both properly address their pending succession plans and devise a system to retain and attract new leaders from younger generations. In an environment charged with uncertainty, boomers are tasked with presenting a compelling case for the new guard to stay in — and lead – the industry.
As a whole, manufacturing is facing challenges from every angle: technology advancements are accelerating production at break-neck speed, cheaper labor options continue to emerge overseas, and acquisitions by larger corporations are a constant consideration. When company owners prepare for a sale or transfer of leadership, they must be able to clearly and effectively communicate with the next generation about how to best steer the organization through these choppy waters.
This becomes especially important when a generation and communications gap looms during a transition. Consider that boomers are known for using a direct management style through which they dictate the process for workflow management. Younger generations, on the other hand, are more open to a holistic managerial approach. Gen-Xers and millennials are motivated by transparency, are typically engaged with workers in the field and thrive off ideas that help move processes along or evolve in a new direction.
It’s important that outgoing and incoming leadership alike make an effort to overcome these stylistic differences. The topic should in fact be a focal point early in discussions about succession, with all parties seeking common ground. Sharing best practices is a good place to start and both sides of the table can offer their experience identifying efficiencies and building a better company. When the two generations begin to see the similarities in their perspectives, they can start to tackle harder operational issues that could derail a smooth succession.
There are myriad issues that require sensitivity during the dialogue. We encourage boomers and the next generations to be aware of potential areas of risks and conflict, and consider what documentation and structures are in place to ensure the business succeeds through the transition or sale. Leaders should ask:
- Is there a carefully-designed buy-sell agreement, which could help to avoid discrepancies in interpretation?
- Has the business been valued recently? Are all parties in agreement about the business’ value?
- Does the organization have strong operational procedures in place already? Are procedures and approaches for critical aspects of the company documented?
- What is the most tax efficient ownership transfer for all stakeholders?
- Are there systems in place for accurate financial reporting that ensure numbers are correct?
- Is the retiree accepting of relinquishing control?
To avoid communications clashes between the generations, prepared leaders will establish expectations early about what a successful transition looks like and what tactical needs will lead to the most efficient transfer. We also advise our manufacturing clients to understand the younger generations’ need for transparency. They should support their willingness to spend time on the line learning about the employees tasked with overseeing production and encourage them to touch all phases of the company. Doing so can enable the next generation of leaders to more effectively interact with customers and determine how deliverables can be improved and production enhanced.
Transitions can be difficult, and the manufacturing industry is currently on the edge of an incredible wave of changes. Understanding the cultural and organizational details is a critical part of ensuring that the company’s legacy will be secure in the hands of the new leaders.
Jack Finning is a partner at AAFCPAs where he provides assurance, tax and business consulting services to a variety of closely-held businesses, as well as sophisticated, nonprofit organizations. He advises clients in the specialty areas of revenue recognition, executive compensation plans, and government contract compliance. Finning specializes in business transaction advisory services for both buyers and sellers of private companies. This includes due diligence, tax structuring and post-transaction integration. He has been serving AAF clients since 1981.