How to best manage the succession plan

It’s hardly an exaggeration to consider the successful transition of ownership and leadership from one generation to the next as two family business miracles.

The 2nd generation typically includes multiple siblings. Often they all become owners, with at least part of that transfer placed into one or more trusts through gifting. All or some may be leaders in the business. While they are different people with a variety of interests, they generally have the bond that comes from growing up in the same household.

Only about 3% of family businesses make it through the 4th generation where complexity can increase exponentially.

So, it’s important to consider why and how some family businesses succeed for generations. With each succeeding generation, in an essential process of renewal, families agree on answers to important foundational questions:

  • What is the purpose of our proactively engaging as an extended family?
  • What is the purpose of staying together as family enterprise owners?
  • To what extent, if any, will family members be engaged in business leadership?

It may be that extended family owners share beliefs about human nature, family enterprise culture and legacy, and directions for the fruitful investment of time and money. They may see themselves as stronger together — culturally, competitively and financially — than if they went their separate ways. Those are the kinds of things that can represent a strong purpose for proactively engaging extended family or staying together as family enterprise owners.

One thing worth keeping in mind is that ownership is not the same as management.Owners can’t just walk into a business and tell people what to do. And ownership does not confer a right to be part of business leadership. NextGen members often work simple jobs in the family business beginning at young ages. They get to know people who work in the business and develop a front line view. Many family businesses encourage or even require NextGen members out of school to work full time at another business to gain experience and earn promotion independently. If they later join the family business, the outside success boosts their self-confidence and credibility with family business employees. New ideas are better accepted when NextGen members have first-hand experience working elsewhere.

Successful family enterprises include involved families, but that doesn’t necessarily mean there needs to be a family CEO. Many family businesses evolve in later generations to a non-family CEO for a business that the family owns. Whether family enterprises are led by family or non-family, a frequent competitive advantage over private-equity owned companies and public companies is longer leadership tenure and a longer range strategic view.

( All Statistical information presented in this blog has been obtained from an extract of an article from the Family Business Consulting Group based in Chicago)

At the Family Business Office we can offer you assistance in dealing with family business issues through incentives supporting advisory and mediation services. Contact us today on [email protected] or visit our website at https://www.familybusiness.org.mt/ for further information.