Your family enterprise will not survive unless you take active steps towards planning who will take over from you when you retire.
The transition from one generation to the next when it comes to family businesses is intricate. Succession in family businesses presents a complex mix of emotions and governance issues that should be handled delicately. Much like leaves on a windy day, things can blow out of proportion in an instant and without notice.
To add to the complexity, succession is just one piece of the puzzle. Other factors such as leadership, wealth management and financial security are just as crucial to the discussion on who will carry on the exemplary work done by the first generation of a family enterprise.
In this blog post, however, we have chosen to focus on what we feel is the make or break of family businesses and that is succession planning.
70-80 percent of businesses in Kenya are family owned. They may not all be as large as Tuskys, Keroche Breweries, RAMCO Group, BIDCO and the likes, but they are still family-run. This means they are likely to face the same issues that all family businesses have faced in the past and continue to face today.”
What is a Family Business?
“A family business is one that, quite simply, is influenced by a family or by a family relationship, and that perceives itself to be a family business.” – Peter Leach, Family Enterprises: The Essentials.
Family businesses are not always fully or majorly owned by families, although some can be. The definition is broad, covering family businesses that have more than 50% company share to one family name to those who do not have majority shareholding, but whose influence in operations is great.
Any family business should have a long-term vision and goals around which it runs and grows. Once these goals are well understand by members of the next generation, then the next step is to decide who will take over from the previous generation.
What is Succession Planning?
Succession planning encompasses all the steps it takes to relinquish the control of a family enterprise from one generation to the next. It includes all of the following:
• Transferring a tried and tested way of running the business to the next generation.
• Change in culture and systems as the transition takes place.
• Change of personnel.
What makes succession planning even more complex is the involvement of family members and the emotional aspect which we cannot stress enough. After all, humans are emotional beings. Failure to plan for succession is inviting discord not just into your family but into the business too. This is true because family businesses are often affected greatly by whatever is happening at home.
“Doing nothing about succession is often disastrous for family enterprises. Yet many family owners, reluctant to give up control and preferring to live with ambiguity, decide that avoiding the issue is the best course.” – Peter Leach, Family Enterprises: The Essentials.
Succession Planning: Essentials
So what exactly is covered under succession planning and who does it?
Succession planning is the process by which the owner/CEO/founder of a family business sorts through the options available to them in regards to the future of their business after they retire or God-forbid die and comes up with an action plan.
According to Peter Leach, there are several options, and probably the worst of them is to do nothing. Doing nothing means a lack of awareness on the part of the founder or owner.
The other options include; appointing a family member to take over, appointing a caretaker, appointing a professional manager, selling the business and liquidating the business.
Perhaps one of the most intimidating questions that a family can think of is, “Is there need for our business to continue to be owned by a family, specifically ours?” Intimidating a question as it is, it has to be answered.
Ultimately, family health and the longevity of the business are more important than facing uncomfortable scenarios.
Once a family decides that the business is best left to their care, then certain critical steps have to be taken. Here they are below as outlined by Leach in his book.
• Realize that outside help is necessary.
• Start planning early.
• Encourage all the generations to work together.
• Encourage colleagues and family to weigh in on the succession plan.
• Develop a training process and educate everyone on what the succession plan entails.
• Develop retirement plans and make them a priority. Retirement of older family members should be timely.
Succession planning is best left to professionals who understand the dynamics of family businesses and can provide an outsider’s valuable input. These professionals will hold your hand as you transition from one generation to another. They will bridge the gap between generations and help by providing training and education.
Are you the owner of a family business or do you currently work at one? Do you feel there is need for succession planning, and have you taken the necessary steps to plan for who will take over the business and how that will take place?
We would love to hear your take on this. If you would like to learn more about the family business training that we offer, send us an email. You can also check out our other management consulting services here.