The Family Business: A Succession Plan is Key to Legacy

One of the most pressing challenges facing a family-owned business is passing the baton from one generation to the next. When it comes time to pass the torch, the process of choosing a successor(s) should start years in advance of the actual cutover date. Essentially, such courses of action should be incorporated into the company’s strategic plan. This is not an event but rather a long-term measure that could take as long as a decade to come to fruition.

The generational handover can be very tense and often conflictual. Families tend to avoid the discussion in order to prevent the almost anticipated friction. Continuity and consistency are critical factors in maintaining a family legacy. The family unit should instead have the complicated discussion early and engage in resolving any conflict.

Often, family business matters are only attended to on the death of the head of the family, leading to much more conflict. In some cases, it leads to the demise of the business. Open and honest dialogue between the family is required long before things fall apart.

It’s essential to seek advice outside of the family structure to put an optimal plan for the well being of the business and the family itself. In certain circumstances, it may be advantageous that the leadership of the company be given to a non-family member such as an outsider or professional. Some businesses have survived many generations by choosing this option.

Coming up with a decision, the succession must not neglect the insight from the next generation; everyone understands the plan. I would also advise that the family put the plan into writing, such as a family shareholders agreement executed by an experienced attorney.

When embarking on a discussion about an exchange of power, it will be of value to the company to follow the 12 principles of good governance principles, which would include having a board with the necessary experience to guide the company.

The roles and responsibilities of each family member should be clearly defined. This may or may not include a seat on the board. On the other hand, some non-family members may have a seat on the board.

I have had family clients who minute all their meetings like a large corporate would. It is an excellent and valuable discipline to adapt to your life.

Should the family not agree on a succession plan, they have plenty of other options available to them.

Some may opt for a public listing, which would include following the good governance principles and having a majority of non-executive directors. This can only be achieved with a company of sufficient size. Germany’s BMW, the United States' Walmart Inc, and India’s Tata group are examples of such successes. They have maintained family ownership and had a portion of their shares traded publicly.

Selling the company may result in good returns, but the family legacy could possibly see its demise.

Depending on circumstances, businesses of various sizes differ, leading to the complexity of finding solutions for the future. The family situation and dynamics may also have complications and obstacles that need to be considered. Keeping the nuances in mind, there is no “one size fits all” solution. The key step is to engage in an intergenerational discussion as early as possible with the correct advice, and the rest for business will follow.

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