Artificial intelligence, the ESG avalanche, increased global mobility and a virus that has turned lives upside down and shifted behaviour and one thing is clear: the world is not the same as it was some years ago and trying to plan for a transition in today’s environment is challenging at best.
Despite all that, somehow, the world carries on and business families, entrepreneurs and landed estates everywhere are having to press on and go about their lives, whilst encouraging next generations to add their own brushstroke to the family’s canvas; The aim? Success(ion).
Suffice to say the world is rather different to what it was some years ago and trying to plan for a complex transition in 2021 and beyond is not an easy task.
However, certain things remain unchanged and for those long-established family businesses the show must go on and ensuring the survival and prosperity of their legacies through next generations remains vital.
A quick internet search will show there is much guidance and so-called golden rules around how to tackle family business succession and yet, despite a plethora of academic and real-world research, the practicalities remain shrouded in mystery, often leading to unanticipated realities, mishaps and even family feuds.
And while change may well be the only constant in nature, as the wise Heraclitus once said, it can be constructively planned for and managed; you only need to look at some of Japan’s 1st millennium-established businesses for proof (think Ryokan and Onsen families) or Europe’s famed wine-making pioneers like the Antinori or Codorniu dynasties.
The family business succession maze
Before diving into the practicalities of family business succession, it is important to understand what drives certain reactions from those involved in the process.
Studies suggest when a family member is faced with a decision, the impact is rarely limited to either themselves or business. For example, a mother who is a director and shareholder in the family business is faced with a dilemma if her youngest asks to take over the business, having less experience than their siblings. If she agrees, how might her other children respond? If she doesn’t, how will her child feel? And how will this impact the business?
Wearing multiple “hats” is a muddled affair however, one thing is clear—in an environment of finite resources such as time, love and money, deciding on the optimal allocation split is no easy matter; Enter Success(ion).
The duality of family business succession
Succession planning in family businesses can sometimes take a back seat. This is mostly due to the sensitive nature of the topic as well as its intrinsic finality. This is also why perhaps a better word for it should be “continuity” rather than “succession”; after all, without inviting an etymological debate, the next generations are continuing the family’s legacy rather than purely succeeding the current owner or leader.
Postponing the conversations around who should take over invites a twofold dynamic. Most of the time continuity is considered from both an ownership and a management lens. That is to say a family needs to decide a) who will succeed in leading the business and b) who will own it—not always the same candidates and indeed often not.
While for some families there is a clear answer (i.e. families following a primogeniture model), for others it is a complex decision that requires thought, time, planning and careful consideration (remember the resource allocation dilemma?).
Taking the first step
How best to approach the topic will vary from family to family. For some, the subject may be broached either at a family meeting or as an agenda item with the family council. For others, a more informal approach may be more appropriate, for example over the weekly Sunday dinner.
As for the right age to have such conversations, again, some families chose to do it when their offspring are in their 20s (or earlier as observers at meetings), whilst others prefer to wait until the next generation are more experienced and may be well into their 30s or 40s (likely coinciding with them taking up a significant role in the business) and perhaps are parents themselves.
It is therefore important to consider carefully what will work for you and no one method is wrong. There is, however, wide consensus that the earlier, the better and having your children getting used to the language of the business can help—just like learning a foreign language. The secret appears to be open communication.
Once you have decided on the most appropriate format and time for the discussion for your family, you should also consider the following:
1. Who will be involved in the process and how will communication and decision-making work—Current generation and next generation only? Spouses? Any non-family members?
2. What is your intended outcome for the process and how does this align with your family’s shared purpose—What type of ownership do you want? Do you want to keep it in the family? Transition to non-family management? Create a philanthropic legacy?
3. How are you going to achieve that outcome—What roles and responsibilities are needed from those involved? What is your talent pool and what should you start doing now? What is the timing?
For families where communication is challenging or where there are numerous parties to consider, typically an external adviser will be introduced to help facilitate discussions.
For some, this may be a long-standing trusted adviser who is familiar with the family background, while for others, having a new and independent voice can be more conducive to constructive discussions.
The ultimate decisions remain in the hands of the family; however, an adviser can guide the individual members through the process, whilst sharing experience, depersonalising scenarios and keeping discussions and progress on track.
Food for thought
There is no magic answer. Continuity is an emotional transition whose complexity can be alleviated by the stakeholders’ commitment to the process. To get them there, you can try these:
1. Together as a family endeavour to normalise the topic at an early stage and encourage views from all generations
2. When faced with a disagreement try reversing roles and consider why the other party might react in a certain manner
3. Remain flexible and open-minded; the process will evolve as those involved do and documenting a set of rules can help provide clarity and set expectations
In our experience, families are nervous about starting these conversations, but are also pleasantly surprised with the outcome, which is usually different than what they expected. Be brave and get started!