The handover–divestment dilemma – or the junior–senior case
The entrepreneurs among us know the trials and tribulations of building up a company single-handedly and the strength and effort it takes. Joining an existing company as an entrepreneur and getting along with your new business partners is again no easy matter. It’s difficult for everyone to keep an eye on both the business and its corporate goals. Instead, people slowly but surely get caught up in quarrels that not only damage people’s health but also gradually take the focus off the goal of successful ‘being’.
A handover or divestment takes a lot out of both sides. How do both sides manage to stay focused no the goal? How do you manage to avoid being distracted by interpersonal quarrels? You think the answer is easy? Then take a look around. How many collaborations around you have failed? How many objectives have been ‘amicably’ adopted? And how many corporate projects have descended into conflict? Whether as a partner and/or future successor, plan achievement in advance by knowing and eliminating the pitfalls experienced in the transition phase. If you’re on the other side of things and want to sell the business, how do you find the right buyer? Or do you need an energetic right-hand man/woman but are afraid that he/she will sap energy rather than increase profit? Can you cope with another variable at your side if you can no longer manage things yourself?
Let go if necessary
Imagine what it’s like to have built up a company through all the highs and lows and then slowly reaching the age where you simply say that it’s time to calm down but still make a profit, or where retirement is edging ever closer.
So you’re looking out for a suitable partner, i.e. a potential successor, your future (junior) partner who strengthens your business or later takes it over and maybe buys it.
Or imagine that you’re full of energy and looking for a new challenge. You find nothing more attractive than joining an already established company step-by-step. So you scrape your assets together and a gradual sale gets underway, or you’re sitting next to your new partner who has built up the company and grown with it. How do you gain a foothold without stirring up a hornet’s nest, e.g. being accused of having executed a ‘hostile takeover’, of ‘ignorance of achievements to date’ and last but not least of being a ‘greenhorn’ or novice?
Many tricky professional partnerships start roughly this way, making it difficult for everyone involved, including existing employees, and jeopardising the business of existing companies.
I would like to use the following case study to urge you to familiarise yourself with the pitfalls that can emerge in the transition phase. The example deals with a planned business handover.
Mr Maier has gathered more than 30 years’ professional experience with his law firm. Over the course of the years, he has built up a solid client base and he often knows his clients’ troubles and concerns better even than their friends and partners.
For more than two years, he’s been looking for a suitable partner to whom he can gradually hand over and sell the firm. He found this person in Mr Riem who is just over 35 years old. Mr Riem is experienced and extremely conscientious.
A gradual handover is agreed via a contract stipulating that Mr Riem will become first junior partner, then majority partner and finally sole head of the law firm. Mr Riem buys the first half of the company’s value on joining the firm. He will buy the second half based on an assessment of the value at the point the senior partner leaves. The contract is completed with a 50/50 profit distribution and a reciprocal right of withdrawal of 2.5 years.
The agreement leaves both partners looking confidently to the future, but neither had counted on the following exhausting conflicts.
Junior partner Riem is dissatisfied with the fact that his senior partner is slowly creeping towards a three-day week, is showing his face less and less in the office but is nonetheless pocketing half the profit. Mr Riem’s desk is covered in work, much of it preparation for business that Mr Maier will complete later, so he’s also the one meeting all the clients. Mr Riem receives no feedback on the work he completes. He’s also feeling patronised by his senior partner and, in his personal opinion and corporate view, is anything but valued by him.
Vague handovers at everyone’s expense
Mr Riem’s biggest irritation is the lack of communication about who he is to the outside world. None of the clients know that he is the junior partner in the law firm and its future owner and head. Mr Riem is introduced to clients as a new member of staff.
The 2.5-year reciprocal withdrawal clause makes it difficult for him to express his resentment explicitly. He is fearful of not becoming Mr Maier’s successor. His anger level is continuously rising but he doesn’t know what to do about it.
When the tax declaration forms and annual accounts of Mr Maier’s girlfriend, who works on a self-employed basis, land on Mr Riem’s desk for a follow-up inspection then enough is enough. The staff member who processed the files had generated wage costs for her, but nothing is to be invoiced given her status as Mr Maier’s girlfriend. This is again at the expense of profit.
The following morning, there’s a speeding fine in the company’s letterbox. The senior partner has again been driving too fast. Naturally, as with all the previous fines, the amount is paid from money they’re both earning.
By now, Mr Riem is barely getting a word out of Mr Maier when the senior partner comes to work. He is increasingly suffering from headaches and discomfort but wants to persevere out of love for his wish to take over the company.
Mr Maier doesn’t know what the world’s coming to. His junior partner is turning out to be ‘Mr Exhausting’. His wish of easing the burden via Mr Riem is increasingly coming to nothing. The status of boss has also changed suddenly as Mr Riem is always asking him to account for his actions and he has to listen to his junior partner ‘carping on’. Mr Riem is also behaving like a bore and trying out new things in the company, such as the introduction of staff appraisal interviews and round-table sessions to discuss conflicts among employees. For Mr Maier, changing tried and trusted ways that work well creates unnecessary risk. His junior partner is also ignoring his many years of often tough work developing the company. He can’t understand why he should have to sit in the office for the same amount of time as his potential successor. The shortened working time neutralises the effort he put in to build up the company, at least to some extent. He doesn’t intend to suddenly start invoicing his girlfriend. There has to be goodwill.
His biggest fear is to do with clients. He finds it difficult introducing his successor to them. The risk of their jumping ship if they clash with Mr Riem is too great, and in that event the purchase value of his company would sink considerably. Why not wait, let the junior partner grow into the business and only announce his successor when he leaves?
It’s already way past 9pm on a Friday night and Mr Riem is still sat at his desk with lots of work still on it. His senior partner left on Wednesday evening for a long weekend with his girlfriend. When Mr Riem finally gets up to go home, he feels dizzy. He sits down again quickly and suddenly hears indefinable sounds spreading in his ear. They get louder and more intrusive. He fails in his endeavour to get to his car. For a moment, he loses his orientation completely. Mr Riem is suffering from hearing loss. His cries for help alert neighbours, who then call for assistance.
He sees Mr Maier again after six weeks of illness. An argument erupts, resulting in both partners invoking the withdrawal clause. Two years and three months have passed.
Mr Riem is again left with nothing and Mr Maier is dumbfounded. It is anything other than easy to find a suitable successor in this remote location.
How to avoid losing sight of your corporate goal
Unfortunately, junior/senior partner situations like the one above are a common phenomenon. The price of the unresolved conflict was borne by the company and people’s health. Did you recognise what the conflict is? Do you recognise yourself? Who’s right?
The answers to these questions have little to do with the causal matter, namely the handover of a successful business and creating a win-win situation for everyone involved. The main point of interest as far as sticking to one’s goals is concerned is how to avoid being distracted from existential objectives in the future.
The separation of both partners causes business damage for everyone in addition to the loss of image that a workplace break-up represents.
The severance of two partners, for example, can lead to an average loss of EUR 50–60,000 purely in removal, reorientation and downtime costs. The loss of reputation, expertise and credibility is not included in this calculation.
The junior and senior partners in the above example demonstrate what not to do.
What should I do if I’m getting involved in quarrels?
Firstly, become aware that every quarrel in professional partnerships costs money and jeopardises your goals.
Secondly, ask yourself if you’re ready to tolerate such circumstances going forward. Thirdly, consider how you can strengthen rather than weaken professional relations. Fourthly, invest in the nurturing and support of conflict-free collaboration. Finally, ask yourself: where are you caught up? Where is your corporate goal suffering from a disruption in interpersonal relations? Where is the quarrel standing in the way of your business interests?
Becoming aware is crucial otherwise the next incident is lurking just around the corner. You can immediately defuse a junior–senior case if you decide not to participate in the process of mutual destruction – even if the behaviour is often only later recognised as destructive – i.e. to put an immediate stop to it. There is no foot on the brake, so put the brakes on when you notice that you’re losing your goal, an approach that is borne out by my practical experience as a coach and consultant. It is only then that you are ready to act, e.g. getting outside help if the process of mutual destruction can no longer be tackled as an insider. It is well known that being involved makes you blind. The deeper you’re in, the less aware you are of the exact situation you are in.
In conclusion, I would like to invite you to take care of your professional collaborations as you would your car in the garage or a horse in the best stable.
Institut Sommer’s Business Coaching can support your handover/divestment of a company (process facilitation) with Conflict management means bringing an existing conflict under control and implementing measures that stem and remedy its consequences.... Read more (Mediation in Companies).