How to manage a successful family business succession - Spear's Magazine

How to manage a successful family business succession


What is going on in the crowded heads of the queens and kings around the world? In the past eighteen months we have seen four abdications, with Juan Carlos I of Spain, Belgium’s Albert II, Queen Beatrix of the Netherlands and the Emir of Qatar, Sheikh Hamad bin Khalifa Al-Thani, all surrendering their thrones. Probably that was to the joy of their next-in-line, who had been waiting to become kings for their entire lives.

However, their trouble is far from uncommon — many people working at their family business have to go through the same prolonged wait. Maybe they helped their parents on weekends growing up, then got an MBA and slowly rose through the ranks after joining the family firm. And yet, when they feel they are finally ready to take over, they realise their parents have no intention of retiring but have rather glued themselves to their desks. In these situations, is it possible to convince them to retire?

It’s tricky, but it can be done. Certain people are going to be more difficult to persuade. It may be because of their personalities, or because they consider the business as their baby, or because they believe you are just not as good as they are.

‘Some people never get tired of doing the job they love,’ says David Ransburg of the Family Business Consulting Group in Chicago. ‘Some think they can always do it better than anyone else.’ Some people also refuse to think about succession — he recalls a family business owner saying: ‘I’ll pass on control if I die.’

In general, expect it to be particularly complicated if you are trying to succeed the company founder, as first-generation family business leaders tend to have the hardest time letting go. In part, this is because they are used to being in control — having started a business from scratch, they had to oversee everything from product development to sales and marketing. But partly it is because they have never gone through a succession before. Next generations, for this reason, tend to start planning succession from an earlier stage. ‘They saw how difficult the transition from the first generation to them was and don’t want to make the same mistake again,’ Ransburg says.

Future tense
If someone has successfully steered the firm for their entire career, why should they leave in the first place? According to the Family Business Institute, 30 per cent of family firms worldwide survive into the second generation, 12 per cent into the third and only about 3 per cent into the fourth and beyond. Bad succession planning is one of the main reasons few family businesses survive, so the sooner you start thinking about it, the better for the company.

‘I don’t know when the best time to start planning the transition is,’ says Ransburg, ‘but I can tell you the worst time — the worst time is on the way home from the cemetery.’ Giving next-gens the opportunity to manage the business on their own, when they can still speed-dial their parents for emergencies, makes a lot of sense.

How to cease being a CEO

Luckily, there are many ways families can crack successions, from keeping ownership tight to working out how parents can become elder statesmen. Boodles, the fifth-generation jewellery retailer controlled by the Wainwright family, did it by allowing each family member to choose whether to join the business or not and then ensuring that those who stayed had a tight control over the firm.

‘One of the failings of a family business is when the shareholder structure gets too wide and too diluted — too much like a pyramid,’ says Michael Wainwright, the firm’s managing director. He and his brother Nicholas, who serves as chairman, bought their sisters out in the late 1990s, following the example of their father, who had bought his sisters out in the 1970s.

Wainwright adds that it is also important that each person joining the business has the same values and work ethic. The family will face new challenges in the next years, as one of the brothers’ nephews, James Amos, works as marketing director but doesn’t own company shares. Wainwright says they are implementing corporate governance. ‘We have only just started having a more structured system of board meetings in the last three or four months, which is helping communication hugely,’ he says.

Managing change
Once you have convinced your parents that an early succession is good for the business, you need to focus on what role they are going to have once you are in charge. You could suggest they perhaps move on to a different position at the family business, more symbolic than managerial. ‘The key is for the matriarch or patriarch to have a role to retire to and look forward to. For example, they could take the role of the head of the family council or they could move from being CEO of the business to being the non-executive chairman,’ suggests Maya Prabhu, managing director of the Coutts Institute.

‘Some European families have successfully done this — the CEO becomes part of a body called the council of the elders and their role is to mentor the young talent from the family coming into the business, which is a very important role. That way, they are able to really provide continuity and stability and the generations coming up benefit from everything they have learnt but at the same time bring in new ideas to grow and develop the business.’

In Germany this is often the function of supervisory boards, whose members aren’t involved in the day-to-day management of the business but oversee the work of the company’s CEO and board of directors. An example is the Eberspächer Group, which produces air conditioning and heating systems for cars. The company was headed by fourth-generation Günter Baumann until 2006, when he became the chairman of the supervisory board, allowing fifth-generation Heinrich Baumann and Martin Peters to take leadership of the firm.

‘What’s really helpful for family business leaders near the end of their career is to get them to think about what they are retiring to, rather than focusing on what they are retiring from,’ says David Ransburg. And if a supervisory role doesn’t appeal to them, it’s time to find them a new hobby. Ever heard of fly-fishing, daddy?

Illustration by Cameron Law



 

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