The next generation of CEOs: many of the B.E. 100's must prepare now to enter the next millennium with new leadership - includes a list of seven steps to succession planning

Black Enterprise, Feb, 1997 by Derek T. Dingle

Many of the B.E. 100s must prepare now to enter the next millennium with new leadership

IT'S BEEN SIX YEARS SINCE "THE CHAIRMAN" gave up his seat. But in the time since Percy E. Sutton, former CEO of Inner City Broadcasting Corp., handed over the reins to his son, Pierre, his fortune has only grown. The legendary entrepreneur's massive holdings, which include radio stations, cable TV franchises and real estate, have continued to thrive without the elder Sutton overseeing the day-to-day activities. But his company's continued good fate didn't happen by accident--just the opposite, in fact.

From his modest private office in Harlem--a few miles from Inner City's headquarters on posh Park Avenue in midtown Manhattan--the silver-maned patriarch details the intricate process of transferring power to the next generation. This transition has allowed the 76-year-old to gradually step back from a company it took a lifetime to build, confident that his business empire would continue to thrive in his absence.

In 1980, Sutton drafted a comprehensive plan that transferred control of the conglomerate to his son, and provided significant management roles for his daughter Cheryl, nephews Charles, Clifton, Paul and Oliver, as well as the progeny of shareholders. (The Sutton family owns more than 65% of Inner City's shares.)

But Sutton maintains the torch-passing didn't happen overnight. "It took a decade to train the next generation and pass on the management philosophy," he says. "And I needed time to gradually remove myself from the company. Now it's time for my children to take the next step."

As the millennium approaches, that next step is rapidly advancing for many of the companies that hold a place on the BLACK ENTERPRISE list of the largest African American-owned companies. For decades, these hard-charging, pumped-up chief executives have endured what could easily be tagged as a long and, at times, painstaking marathon. Many of these industry leaders, like Sutton, are approaching retirement age and realize that they are now competing in a different contest: the corporate relay.

But after a lifetime spent supervising their enterprises, many of these chief executives have yet to figure out whom to pass the baton to--or how the whole transfer of power should take place. Yet, so much rides on this changeover: These founding fathers are not only betting on the future of lifelong enterprises, but often their family's primary wealth-generating assets are also at stake. (More than 30% of family-owned operations have more than 75% of their net worth invested in the business.) So passing on the family business requires a concrete succession scheme, strong leadership and thorough estate tax analysis.

The changing of the guards within the BE 100s comes at a critical time--the stakes have never been higher. Economic, financial and technological obstacles of the coming century will be tougher to hurdle. And these businesses, which often serve as a gauge to the state of the black economy, need to be more nimble as expansion capital becomes tighter and the competition grows fiercer.

The BE 100s largely consists of closely-held entities that are in need of clear-headed succession planning: 27 of the companies are 25 years or older, and another 34 will mark their 20th birthday by the turn of the century. And although the companies have gone through radical permutations over the years, many of the BE 100s CEOs are well into their 60s. If they haven't already started, now is the time for many of these BE 100s mainstays to prepare succession plans. This group includes: John H. Johnson of Johnson Publishing Co. Inc.; Herman J. Russell of H.J. Russell & Co.; Edward G. Gardner of Soft Sheen Products Inc.; and Byron E. Lewis of Uniworld Group Inc.

To their credit, many of these corporate chiefs have given their offsprings significant operational roles, although most have yet to relinquish the top spot. Many others have yet to develop any type of concrete succession plan or identify runners for the next leg of the race.

So what's at stake for these companies? At the very least, without meticulous planning, many of these founders may see the unraveling of a lifetime of hard work. Or they may be forced to sell their company--some to majority concerns. Only 30% of such companies survive a generational transition, and roughly 10% make it from the first generation to the third. (One BE 100s company, C.H. James & Co., a Charleston, West Virginia, food distributor has been in operation for four generations.)

But the results can be impressive when the process is well-planned. With $26 million in gross revenues, the 25-year-old Inner City continues to maintain a solid position as one of the nation's largest black-owned businesses. And for the elder Sutton, handing over the keys to Inner City was just the first phase of the succession process. Now he's preparing to charge his offspring with management of the family's investment portfolio--including AT&T and Coca-Cola stock--worth in excess of $50 million.