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Succeeding with succession
By Charles Armstrong and Grant Walsh
“While it is apparent that the health of family-owned businesses is strategically
important to Canada, the overall level of succession readiness is surprisingly low —
it is difficult to pass a family business successfully from one generation to the next
if family, financial and legal preparedness do not exist.”
(Canadian Journal of Policy Research (ISUMA), Winter 2001)
Family business succession
is different
Recent surveys and ongoing research
in family business continue to support
the notion that the greatest risk to the
continued success of family business
is the passing of the business from
one generation to the next. Family
business succession is different and
much more difficult than succession
for non-family enterprises. The impact
that family dynamics can have on the
succession process should not be
underestimated. In some cases, family
dynamics are the elements that define
whether or not the transition is
successful. Family businesses that are
willing to acknowledge and manage
the family dynamics, and the unique
challenges that they can create, are
far more likely to experience a
successful transition.
Family business owners have to work
through the succession process while
playing several different, and at times
conflicting, roles. On one hand they
must play the role of business owner
and leader, determining what is best
for the business, which may not be
consistent with what family members
want. Owners must also play the role
of parent, friend and coach to their
children, providing them with
unconditional love, support, protection
and both career and life opportunities.
These roles are often conflicting.
Balancing the needs of the business
and the needs of the family is no
easy task and often is the major
contributing factor to the absence
of formal succession planning for
the business.
While family business owners
often believe that their family
issues are unique, most family
businesses experience the same
issues and challenges.
Key elements to succession
1. Leadership
Typically it is assumed that the
current senior management will
lead the succession process.
In fact, to optimize the succession
process the next generation needs
to take the lead and see it through.
2. Communications
Lack of communication is often
cited as the number-one obstacle
to successful family business
succession. Providing a forum
(i.e., family meetings, family
council) that allows family
members to freely and honestly
express their wishes, aspirations
and views with respect to the
future leadership and ownership
roles in the family business is
essential. Having parents solicit
this kind of information over Friday
night dinner simply does not work.
Frank and open communication is
best achieved through the use of
an external family business adviser.
3. Managing conflict
When asked what issues are of
the greatest importance and
greatest difficulty for the family
business, members often cite
“resolving conflicts among family
members who are in the
business” as the key issue.
Conflict seems like an inherent
component of families in business.
Family businesses need to
establish conflict management
processes to minimize existing and
potential conflict. This is a good
agenda item for the first family
meeting.
4. Management succession versus
ownership succession
There is a tendency to focus on
who gets the shares and at what
price. Although this is a very
important component of the
succession process, it should not
be finalized before management
succession has been determined.
The ownership plan should reflect
and support the management
succession plan.
5. Roles and responsibilities
The management succession
process should include a review of
the structure, roles and
responsibilities for key
management positions during and
after the transition. Far too often
current leaders feel that they have
an obligation to retire and pass
control to the next generation,
even though they are not yet ready
to retire. Most would be more
than willing to consider a role
change. Failure to deal with this
issue can result in the loss of a
valuable asset to the business, or,
conversely, can result in current
leaders becoming a major obstacle
to the transition process.
6. Financial security for the
current owners
Owners who are not financially
secure will be much more
reluctant to let go of leadership
roles in the business if their
retirement income depends on
their continuing employment. Part
of the succession process needs
to deal with providing the outgoing
leadership with the financial
security they need.
Most successful family businesses
will face the challenges embedded in
these key succession elements. If you
handle these key issues properly, your
succession plans have a much greater
chance of succeeding.
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