The future is coming no matter what, and companies, just like individuals, must plan for it. Construction industry firms are no exception, and those organizations — both large and small — must develop succession and transition strategies to ensure the next generation is successful.

Construction firms looking ahead

There are two main considerations when deciding who will take over the ownership and management reins. Some companies pick executive successors without tampering with stock, and there are others who make it all part of a package deal. This year, two major industry forces decided to hand over ownership to employees, but the ability of those employees to run the company successfully played a major role, making long-time owners feel comfortable moving on.

For example, last year, The Boldt Company — a Wisconsin-based, family-owned construction firm that specializes in healthcare and power plant facilities — decided to implement a five-year plan that would see management walk away with 25% of ownership and employees with 45%, while the Boldt family retained only 30%.

Many buyers, according to the Milwaukee Journal-Sentinel, had offered to buy the company over the years, but Oscar Boldt, grandson of founder Martin Boldt and chairman of the board, said the family felt the best way for the company to continue on and to retain its existing "culture and values" would be through a system of employee ownership. 

The founder of Clark Construction Group, the late James Clark, expressed a similar sentiment before he died. He believed that management should consist of those with hands-on field experience and assembled such a team. In January, that team purchased the company, a strategy in line with James Clark's wishes, according to company insiders.

An Employee Stock Ownership Plan (ESOP) is a popular way of transferring the company into employee hands, according to Carl Oliveri, partner-in-charge of construction practice at Grassi & Co. An ESOP, a qualified retirement plan, effectively creates an internal market for the company's stock, allowing the existing owners to "cash out." The plan allows for tax savings, but, perhaps more importantly, it usually improves employee "retention, motivation and overall profitability," he said.

How to select the best new leaders

According to Wally Adamchik, founder of consultancy firm FireStarter Speaking and Consulting, ownership isn’t the only way a company can retain its best employees. "It's the fear of having the conversation that causes dissatisfaction," he said. "Even 'I don't know' is a legitimate answer." The question then, Adamchik said, is, "What does it take to get you to know?"

Adamchik also has construction industry experience, and he said one of the keys is to select management based on a healthy respect, if not outright knowledge, for field operations. "When you look for a good successor, if you can't bridge the gap, at least understand that the gap needs to be bridged."

What's worrisome, he said, is that he's seen a millennial distaste for the field, and today it's often only the payoff and potential for advancement at the biggest companies that can inspire that demographic to tough it out and pick up a shovel.

"Millennials are looking for more tech-savvy careers in white-collar environments, which translates to less younger workers coming up though the ranks," Oliveri said. "There are not enough millennials being attracted in order to replace the aging and retiring baby boomers, let alone to keep up with the growth the economy is currently experiencing."

The effect of those shortages will start presenting themselves when some companies look internally to pick future leaders. "This issue has been growing for the past couple of years and could continue to create havoc for management and owners in the future," Oliveri said. Because the choice is usually to promote from within, companies will have to hustle to meet the coming wave of baby boomer retirements.

Why communication is crucial in planning

The succession process for family-owned vs. non-family-owned companies isn’t all that different. The most important factor is communication, according to Adamchik, because the obvious choice to executives might not be so obvious to the future leader. "The best firms these days communicate well, even within a small family business," he said. 

Adamchik said he believes that companies put forth diligent efforts to educate to potential future leaders on the responsibilities ahead. "You have offspring who don't want it, but you also have players in a family business who aren’t family that want to play a role," he said.

There are also outside influencers who could have a voice as to who will end up at the helm of the business, including bankers, bonding companies and even large clients who have a vested interest in the quality of leadership.  

"Some customer relationships are personality driven and depend on confidence in the judgment, experience and temperament of one or more senior executives or owners," said attorney Josh Leavitt, principal at Much Shelist, P.C. Without succession planning, he said, those relationships can be threatened.

However, it's not only retirement or "aging out" transitions that need to be kept in mind. "There are many other reasons — accidents, change in life plans — that changes in leadership can occur," Leavitt said.

The importance of starting a plan ASAP

For those companies that want to implement a succession plan, Leavitt said the time is now. "Succession planning doesn’t happen overnight and needs careful legal, business and even insurance planning," he said.

Adamchik agreed with the advice to begin a plan as soon as possible. "It takes longer than you think, and the way is full of potential pitfalls," he said. Prospective executives could decide to leave the company, or a previous year's perfect choice might not pan out moving forward.  

When all is said and done, Adamchik said a good construction industry leader "isn’t afraid to walk out into the field and shake a guy's hand." They respect the work that takes place in the field and understand that those doing the heavy lifting are a significant part of the company. "The executive who bemoans the fact that he can't get to the field as much as he used to is probably going to be OK," he said.