Blog

Written by Jane Halford, FCA, ICD.D

There is a certain taboo that comes with leadership succession for family businesses. Passing the torch is a much more difficult conversation when your business and family are intrinsically linked. Often, the founder or current leading generation will intend to remain in control of the business for the foreseeable future without taking their own mortality into account. But as we’ve learned over the years, the world is far from predictable, and any number of emergencies or sudden change could cause disruption. It’s unrealistic to expect the current leader to continue indefinitely when death or medical emergencies could render them unable to lead the business at any time.

It is therefore imperative to prepare a business continuity plan.
Unfortunately, these conversations don’t happen as often as they should. According to PwC, only a third of family businesses have a documented succession plan in place. As a result, many family businesses don’t make it into the second generation, and even less survive into the third. The lack of open discussion about what happens to the business after the current leader and/or current owner is gone ultimately leads to inaccurate assumptions. The owner(s) may assume that the next generation’s willingness to carry on the business is a given.

However, if formal discussions are not had or documented, the next generation may, in fact, think they’re unfit to take on the leadership.
Without proper training and development to prepare them for a future ownership or leadership role, they may even suffer from a lack of confidence in their own competence. When these kinds of plans are put off, inaction will eventually make the decision for you.
A generational transfer is not a one-time event. Many expect succession can be achieved in one to two years, when in reality, it can take up to 5 years, with family business transitions extending to as long as a decade. This can’t be a last-minute decision. Plan for any eventuality for the coming years to ensure your business’ resilience through any crisis.

Succession planning doesn’t have to be as uncomfortable as it seems.
Having regular family meetings to discuss your options and plan a generational transfer together can help normalize these conversations and alleviate the tension that comes with it.

Here is how you can normalize succession discussions with your family:

Balance family values with business goals–– It’s important that your family is aligned on its own values. Individual family units within your extended family may have their own particular values in mind; it’s best to consolidate how everyone defines the overarching family’s values. Getting everyone on the same page will protect the business’ legacy by identifying common goals and unveiling the business’ main purpose.

Once everyone is clear on the family’s values, you can begin to define the business’ objectives.
By letting your family’s values speak to the business’ objectives, you can achieve a shared vision and intergenerational solidarity.

Ask the difficult questions–– Sometimes leadership succession planning means asking hard questions. For instance, there may come a time where the family can’t realistically continue on with the business. Reflect on your own family’s situation. Can the business survive without your family involved? And on the other hand, will your family members find fulfillment in their lives without the business? At the end of the day, answering these questions is about identifying the healthiest options for both the business and your family. You may find these two things might not be as compatible as you think. Be prepared to entertain the possibility of bringing in an external leader or owner if it’s unrealistic to expect the next generation to take on responsibility for the business. After all, this is a huge life-long commitment to make. It takes honest self-reflection to understand whether you’re involved with the business for the right reasons.

Are you involved in the business out of genuine interest, for instance, or does it feel like an obligation?
Take the time to explore these questions to come to an informed decision for both your family and your business.

Prepare the next generation–– Family business is unique in that the next generations get to grow up with the business in the background of their lives. It is therefore helpful to expose them to the business as early as possible by integrating it into their lives in an organic way. At the end of the workday, it’s easy to vent about what went wrong, but it’s equally important to express what you love about the business on a regular basis. Otherwise, the next generation may grow up only seeing the business as a burden and not worth the headache. Sharing your pride in the business helps them understand how fulfilling the work truly is. Telling stories about your best moments within the business makes a significant difference in giving your children context for why it’s such a meaningful part of the family legacy. This also opens up opportunities to pass on the history of the business, so they see how far it’s come and what went into its success today. Raising them with pride for the family business gives them an open mind for their future, with the business being one of many viable paths they can take. Be supportive of whatever choices they make, even if it means they step away from the business to build their experience elsewhere. Having outside professional development opportunities can actually work as an advantage should they return to the business at a later date.

Clarify your expectations and intentions–– Documenting your succession plans means defining your intentions for any future generational transfer. This includes specifying timelines and achievable milestones to meet along the way. This breaks the process down within the context of everyone’s individual roles. It takes a whole team to achieve a successful leadership transition; each family member should be clear on their role in the process.

A succession plan won’t be a static plan.
It will change according to updates within your family and according to the external business environment surrounding it. Births, deaths, marriages, and divorces will influence your succession plans as much as any market change. Set up regular family meetings to address any change that might take priority and update your succession plan accordingly.
Openly discussing leadership succession amongst your family ensures the resilience of the business. The more you have those uncomfortable discussions, the easier they become over time. This sets up your family to better envision the future for the business, in any form it takes. Together, you can make the best decisions for both your family and the business and protect your family’s legacy in the process.