Strategy, Competitive Fitness of the Business, and Financial Results
Sigma Motion, Inc. is doing well. It is growing the top line and retains healthy profit margins and respectable bottom line results even in the middle of a capital investment contraction not seen since 1989. The consolidation of manufacturing plants, the resulting cost savings, and the re-focused strategy developed by the entire top management team augurs well for the company and its ability to be competitive in the global industry in which it operates for another generation. The company has successfully recruited and retained key nonfamily management in key areas such as engineering and finance. And it now enjoys the financial and strategic oversight of a board of directors with independent outsiders.
Relations between Ron Burton and his two adult sons, Bob and Michael, are quite good. There is no apparent conflict or cut-off in communications. But there is difficulty brewing around two issues:
1. Ron is not ready to retire. He has delegated a lot to his two sons, to the company president, and to the top management team. He travels frequently and sometimes for extended periods, but according to Mary, his wife, â??the company is still his child.
2. Both Bob and Michael fit the profile of independent entrepreneurs who want to run their own company much as Ron wanted to do when he left his father's company to start his own. But Ron sees Bob and Michael each having their flaws, and only their combined complementary skills and personalities being capable of running the company effectively. So for the good of his sons, the good of the company, and the risk-adjusted returns of the family's estate, he would like them to run it together. (Of course, either of the sons could also hire a nonfamily manager to provide those complementary skills as either one would have to do regarding engineering skills since neither Bob nor Michael have an engineering degree and this is one of the traditional core competencies of the firm.)
As a result, the owning family is paralyzed regarding its plans for the future. Top management sometimes suffers the same plight as the two sons voice very different opinions or suggest very different approaches to a situation.
Mary is effectively carrying out the Chief Trust Officer role (as discussed in Chapter 3) and suggesting that other outside advisors also be used to help in the process of succession and continuity.
To the extent that Ron Burton is already 70 and still remains CEO, Chairman of the Board, and controlling owner, he is violating some of his own principles regarding the need to run a family business as if it were a professionally run, publicly traded company. He is not observing forced retirement rules often governing those corporations. Of course, his rationale is simple: He has not seen evidence yet that Bob and Michael are ready to run this business effectively as a team, and that is what he wants to see happen.
Bob and Michael are waging a silent war for â??successor selection. They each want to be the â chosen one. Their spouses have in the past been part of the dynamic of running a campaign for their husband and against his adversary. Bob feels that experience should count more on the ultimate selection and since he is the eldest child and has worked in the company much longer, the decision is simple. But he understands that the way things are he would need to be able to lead his brother and the rest of the organization and is not certain he could do that. This may have played a part in his decision to turn down the President's job in 1999. Bob also feels that Michael, being the youngest, has received the velvet treatment, is favored, and gets to spend more time with Dad. Michael, on the other hand, feels that his work experience outside the family business, his MBA, and his close relationship to customers give him the decided advantage. Both Michael and Bob are working with outside coaches and advisors in search of a solution to their quandary, but their ability to build a sibling alliance is still in question.
If Michael were to be the successor, he would have to deal with the juxtaposition of a family hierarchy in which he is a notch down, as the youngest, and a management hierarchy in which he would be a notch up relative to Bob. The incongruent roles would present Michael with a significant developmental challenge. Would Michael be capable of restructuring his identity sufficiently to be able to lead Bob and the rest of the family shareholders? Or would he be reacting and undermining his own leadership because of his traditional family role? There is much evidence that primogeniture is not the answer in many family succession situations; the incongruent juxtaposition of historical family roles and company roles presents significant adaptation challenges to both the leaders and those they lead. (See Barnes, L., â??Incongruent Hierarchies: Daughters and Younger Sons as Company CEOs.â? Family Business Review, I(1), 1988, pp. 9â?"21.)
Management Succession Difficulties
Because of Ron's desire as father to have both his sons running the company (he loves them both equally) and his desire as CEO to have both their sets of skills available to the company, management succession planning has hit a roadblock. Both Bob and Michael are already in top management positions and their only advancement opportunity would be for one of them to become President or both of them to become co-Presidents. Neither is willing to report to the other.
The board has not yet taken up the succession issue. But they too would undoubtedly be ambivalent to begin with. Perhaps the only hope is that they or a committee of the board begin to make the criteria for selection explicit, that they encourage Ron to cast a wider net of potential candidates, besides Michael and Bob, and in the process begin to further clarify who might represent a better fit with the company's strategy. Or, they need to consider what form of organization might accommodate an effective sibling partnership of Co-Presidents.
Either way, this process will require a few years to play out. In the meantime, Ron Burton (CEO) and Chuck Briscoe (President) need to remain firmly in power to avoid a leadership vacuum that could prove disastrous to a company that is only now coming out of very challenging competitive setbacks.
Ownership Succession and Estate Planning Difficulties
The reasons for not having advanced further in management succession hold true for the planning of ownership transfer. In the absence of clarity about the future, Ron Burton appears intent on retaining majority control even beyond the age of 70. Nonvoting shares are being gifted, as are other assets, but the control of the corporation is staying where it has always been.
Threats to Family Unity and a Positive Family-Business Interaction
While not selecting a successor provides everybody in management and the board with additional time to assess and decide, the continuing rivalry between Bob and Michael poses a threat to family unity. It also poses a threat to the perception by family members of career opportunities and therefore presents the likely possibility that what has constituted a resource to this family business"committed ownership, patient capital, speed, and customer orientation may ultimately turn into a significant agency cost resulting from CEO entrenchment, avoidance of conflict, and CEO altruism. In other words, Sigma Motion, Inc. is at a critical crossroad. Will the family influence continue to be a resource for competitive advantage or will its inability to choose a successor begin to pose a series of disadvantages and costs that will eventually erode its capacity to be successful?
1. State the facts of this case as it relates to the state of the business. How sound do you think Sigma's strategy is? What about its financial results? Does the business appear capable of competing effectively in the next generation?
2. Why do you think Michael has changed from performing at a high level and being committed to the business to writing a letter about leaving Sigma Motion immediately?
3. Why would he choose to write a letter, instead of talking about his concerns with other family members?
4. What other options does Michael have? What actions should Michael take to support the viability of some of these other options?
5. What other actions could Ron Burton take to support an effective transition across generations at Sigma Motion?
6. What about the board of directors? What actions might they take to improve the odds of success?
7. What do you think will ultimately happen in this case?
response is 1,332 words, no references
This is an interesting case study, if only because it contradicts itself. Early on, the study indicates that relations between father and sons are quite good and that there is no apparent conflict or communication breakdown. However, succeeding paragraphs describe a definitive conflict and communication breakdown if not between father and sons, then between the two son's themselves. The father is quite clear: his sons have not convinced him they are prepared to lead the company. Sibling rivalry has reared its head in this family run business and due to their father's chronological age, puts Sigma at an extremely critical crossroads - in this, at least, the case study is correct.
Although Sigma has consolidated its production footprint, taken a hard look at costs and developed a next generation strategy, neither of these things, singularly or combined, guarantee future growth. Without new products or significant value additions to existing products, significant increases in market share, or significant reductions in price (thereby creating a more favorable price-to-value ratio for customers), cost savings, production consolidation and executive alignment on strategy are not by themselves, viable methods to achieve growth. Financial performance is decent/acceptable at the time of the study, but there is nothing that indicates a strategy for growth which exceeds a generational timeline. In short, it seems that their strategy may be shortsighted. Because of this, Sigma needs to resolve the question of leadership so that it can move forward with executing on their growth strategies (hopefully defined in their executive strategy plan). If it does not resolve the leadership issue (which could include Ron remaining as CEO for the foreseeable future), the power vacuum will consume time and resources critical to growing the business.
Michael's position is unique. As the youngest sibling and the only sibling to have worked outside the family business and with ...
This solution is a case study (Sigma Motion) analysis exploring succession planning across generations for a family owned business.