The notions of what Family Business Succession is really all about have changed quite dramatically. Long gone are the days of the ‘Family Business’ simply passing along generational lines to the sons in the family with the elder son assuming the mantle of leadership.
Family businesses are big businesses, many individually in their own right, and as a sector they are a global-powerhouse. The transition they are experiencing as a sector is significant and presents many challenges to their owners, the sector and the economies in which they trade.
The enormous risks and opportunities that exist today are recognised by few.
A recent article by Katie Hope, a Business reporter for BBC News, titled ‘Change in China for family succession’ is a good example of what is happening globally. The article opens with ‘Chinese business leaders are starting to focus more on their business legacy than their family legacy.’ It notes, and provides examples of, what many would consider a surprising turn of events where the Asian tradition of passing a business along family lines to sons now seems to be softening, dramatically. The current generation of owners are now questioning the wisdom of passing management control through to children who may not have the management capability to oversee and steer the business successfully through the next generation. But this is not an isolated cultural or regional change.
A recent global study by Baker Tilly International titled ‘Succession Reset’ (across 56 countries in nine languages) of the success strategies, barriers and dynamics of succession has recognised that the pattern of passing management to non-family members is a cross cultural and global phenomenon. The other pattern that Succession Reset notes is gaining traction globally, is for daughters in preference to sons to take the mantel of leadership.
Again another recent article, this time in Bloomberg Businessweek by Diane Brady titled ‘Fidelity’s Abby Johnston: Not the Only Daughter Rising’, highlights the number of instances where daughters are winning key leadership roles in their Father’s businesses. The article leads with the example of Abby Johnston who is the newly named CEO of Fidelity Investments, ‘She’s also one of a growing number of daughters who are proving to be as adept at running businesses as their powerful fathers.’ So what is driving this changing pattern in family business succession?
There are three clear agents that underpin this transition:
- The goal of succession is ‘the compounding of wealth from generation to generation while ensuring family unity, individual growth and a sense of contribution.’ The goal is to compound the wealth for the benefit of the family and this goal requires that the best person for the job be appointed.
- Businesses are now far more complex than in the previous generation due to globalisation, the Internet and digitisalisation. The skills to manage and lead large businesses are unlikely to be held by a single person and are not necessarily by a family member.
- The incoming generation of family members have been raised with a freedom to choose their careers independent of the family. The obligation to take over the family business is now second to many other personal considerations.
Combined these three agents together and succession is now complex and unclear and a real challenge for many families. Unfortunately the outcome of this challenge for many families is to simply sell and cash out the business value. This, however, may not lead to the compounding of wealth across generations but rather a lost of wealth and a lost of the passion to grow businesses.
Family business now need to be Succession Ready, that is ready for either:
- Transition to new management which may consist of family and non-family members, and/or
- Sale in part or whole relinquishing family ownership.
In preparing to be Succession Ready the current owners and management of the business need to follow Eight Guiding Principles:
- Succession is not retirement
- Start with readiness
- Set your goals before the journey
- Harmony is a must
- Price is not first
- Plan early, start earlier
- Equality is not equal
- Ask before you get lost
