One of the side effects of the Great Recession is that E&C firms have put their transition plans on hold. Given the urgent need to secure work, the painful process of downsizing and the bleak prospects in many construction sectors, succession planning is taking a backseat to concerns that are more prosaic. Nonetheless, ignoring succession planning is a mistake that will fester with time.

The following are significant issues that suggest companies should address this issue sooner rather than later:

1. Demographics are important. Many sociologists have mused that the baby-boom population has been akin to an egg passing through a snake in terms of its impact on the economy and culture. There
were 79 million baby boomers born between 1946 and 1964. In contrast, the following generation, Gen X (those born between 1965 and 1980), has only 46 million members. Sheer demographics suggest that as the Gen Xers enter their prime career years and an age (now 30 to 45 years old) where they are
highly likely to be candidates for ownership, there are simply too few of them to go around. For years, the industry has bemoaned the lack of potential executive talent in the next generation. For companies that have candidates in this age group, now is the time to get moving or risk losing them!

2. Downsizing has improved balance sheets. One of the ironies of the Great Recession has been the ability of many contractors to anticipate poor markets and proactively right-size their businesses. As a result, many companies currently find that they have excess capital that exceeds their routine working capital and bonding needs. In terms of succession, this has two benefits. First, it allows current owners to pull cash out of the business to monetize their investment. Second, it makes many E&C firms affordable in terms of an internal buyout. All else being equal, it is much easier to sell a $100
million general contractor with $5 million in equity to the next generation of owners than a $300 million general contractor with a net worth of $15 million.

3. Widespread ownership of E&C firms is being reevaluated. One of the unfortunate impacts of the economy has been massive layoffs of industry personnel. With a construction unemployment rate of almost 20%, the impact has been felt even at the executive level. Up until a few years ago, many E&C firms offered equity ownership as a means to entice talented employees to their firms in the war for talent. As a result, a clear trend in the industry was the presence of minority ownership interests that reach deeply into a firm. With many contractors now burning through precious working capital to buy back stock from minority owners, many firms are now reevaluating this practice and considering
higher concentrations of ownership strictly for top leadership.

4. Do not let a valuable lesson be wasted. Ask any bonding agent, banker or, for that matter, industry consultant, “What is the best experience a construction company executive can have?” Invariably he or she will tell you that the optimal experience is having guided an E&C firm through a near-death
experience. Taking a construction company to the brink and living to fight another day is an invaluable and galvanizing career achievement. Contrast the crucible many contractors are facing in the current market environment with relatively placid markets of only three or four years ago. Having a capable, young executive team that manages through the current economic environment will be a potent force in the future.

5. Use the current economic environment as an opportunity to upgrade your talent. The industry has suffered through wave after wave of devastating layoffs and cutbacks. Nonetheless, there are an amazing number of talented, seasoned industry executives who are available in the market. Whereas
anyone without a job in the industry would have been viewed as suspect a few years ago, there are some extraordinarily skilled industry veterans out there. If your succession plan is languishing due to incapable and ineffective bench strength, the current environment offers an excellent opportunity to upgrade the talent in your firm.

6. Reinvent your company. Many contractors have been blindsided by the economy and are unable, and sometimes unwilling, to change their businesses strategically. The new market and its challenges
can pose an excellent opportunity to have your young, key management reevaluate and redesign your company’s strategy. Organizations are always fearful of change, but change is inevitable if the survival of the firm is at stake. Have your successors challenge your organizational paradigms and redesign the business. It could take you in a new and exciting direction as well as develop their talents as future leaders of the firm.

Companies face challenges as they attempt to plan the workforce of their future. No one has a corporate crystal ball. Those organizations that pay attention and strategically plan for their new leaders and engage their employees in the process will be more successful and enjoy a more secure future.

Written by Landon Funsten

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