The thorny issue of succession planning in US family businesses has reared its head again in a Deloitte survey which revealed that only 50% of owners admitted to reviewing their plans when a crisis hits.
As an experienced business strategist and performance coach, boosting the effectiveness of family run enterprises, I found the fact that 41% of businesses do not have leadership contingency plans equally worrying.
Family companies continue to be the backbone of the US economy generating 57% of the nation’s GDP, employing 63% of the workforce – and creating 75% of all new jobs.
With over 35% of Fortune 500 firms family controlled – succession planning remains a key priority.
So why are only 30% of US family businesses passing the reins to the next generation – even though almost 70% would like to keep it the family?
Tackling the emotional hurdles involved in transferring a family-owned business demands brutal honesty and a clearly defined process to assess if the next generation is capable of driving the company forward.
Here are some key steps to plan effectively:
Set up a Family Plan, prepared by the head of the family, which deals with the objectives for the company. It includes financial security, life after the business – and how the company and its assets should be passed on. It’s important that the plan is understood by everyone and regularly reviewed to avoid dangerous family fallouts.
Also set up a Family Charter – a written agreement between family members covering things such as ownership, voting/control and employment. Also referred to as a family mission statement or a family constitution, it can include a family code of conduct and addresses issues including:
- What is required of family members to enter and remain in the business
- What is required for them to become part of management
- Who is eligible for stock options
Establish the best person for the role. If your son/daughter is not capable of taking the business forward, an existing senior manager may be more suitable. You may ultimately decide on a trade sale or a management buyout (MBO).
If you face the dilemma where your son/daughter are impatient to take over and you are not ready to step back yet, bring in an external advisor who has no agenda and can facilitate the situation dispassionately. Ensure you check out their credentials and how many similar situations they have previously dealt with.
If the business is to remain in the family, establish how much training and development your son/daughter requires to take over. Also consider incentives for key managers who are not family members, to recognise and acknowledge their contribution.
Robustly challenge yourself if family succession is the best way forward for your staff? Remember they have played an instrumental role in building the business and are keen to see its future secured.
If you are steeping back – ensure you butt out once you have set the processes in place, Avoid interfering as this will spark unnecessary fireworks at a delicate and formative period.