Succession is never easy. Research has shown that only 13 per cent of family businesses survive beyond the third generation. Plan succession properly then the business can survive for several generations to come. Fail to plan means you’re planning to fail so how can families ensure they survive the potential pitfalls? David Foster, Head of Private Banking at RBS Coutts Cayman reports.
The key objectives of succession are typically to protect family harmony, family wealth and the family business but during this period of generational transition, the business is at its most vulnerable and emotions run high.
The transition of the family business raises complex and emotion laden problems and with so many public tales of acrimony and legal wrangling in relation to business succession, it is little wonder that many family business founders fail to plan. However, ironically, it is this very failure to plan that causes the disharmony that they try so hard to avoid in the first place.
By planning ahead, effective succession strategies can be formulated and implemented in an open and positive environment. There is every reason for optimism.
While no two family businesses will ever be the same, there are three core elements common to all; the family, the business and the owners. A change in the make up, structure or dynamics in any one of those three elements will inevitably impact the other two. Good succession planning means being cognisant of this fact and adopting a holistic approach to transitional management.
Succession planning should therefore be separated into the succession of ownership and the succession of management. It may be, for example, that the best solution is for ownership of the business to remain within the family but the management is left in the hands of outside professionals. Whatever the outcome, it is important that business decisions are taken for business reasons and not family ones, as often happens.
It is crucial to decide what the vision for the business is and to be sensitive to the differing expectations of the next generation. Does everyone understand and buy into it? Has everyone had the opportunity to influence of becoming shareholders and/or managers of the business? If you only plan to give shares to those who work in the business, how can you be fair to those who do not?
Managing the succession process in a family business tends to be most successful when it results from a well planned partnership with the next generation. This partnership hinges upon effective communication and a clearly aligned vision between current and future generations.
Succession planning and management need not be the horror story of family skeletons and feuds. If well planned it can be a period of great growth and fulfilment for both the family and the business.
All too often we read about family businesses in crisis, those in conflict or those that did not survive the transition. Little recognition is given to those who do survive through adapting to new developments and challenges and have found their key to long term success.