Succession planning in a family enterprise

Picking up the keys of the real estate agent

Succession is a concern that most new, start-up entrepreneurs have barely begun thinking about.  But not for long.  When the business has taken off, stabilized and grew, and once the entrepreneur gets on in years and the idea of his mortality sets in, he begins to worry over continuity of his business.  He begins to think of ways to make sure his business becomes a legacy that can be passed on down generations and preserved.

Co-founder and partner of family-based Banyan Family Business Advisors Dr. Joshua Baron articulates  his thoughts of how a family business can be preserved for posterity through ensuring succession.

He begins by saying that most family business executives he has met are concerned about succession and are very much interested in having what they have built  continue into the next generation.

There is no question that it is essential to find the right person to lead the business in the next generation.

“At the same time, that focus on identifying “the one” that sometimes gets in the way of addressing other essential issues.  For example, one of the most important decisions that each generation makes is about how ownership will be passed to the next generation.

“Will it be done equally or will some be given a greater percentage? Will shares be passed down directly or through trust? These decisions fundamentally affect how the family will live and work together in the future, though too often they are either unaddressed or driven mainly by tax planning.

“It is also essential for the current generation to think about what kind of organization they want to leave behind.  It’s risky to put all of eggs in one basket by choosing a single successor.

“Instead, it’s better to focus on making sure that the company has a clear strategy as well as the organizational structure and capabilities to support whoever is in charge.

“Lastly, the succession process tends to focus on passing the baton down to the next generation without thinking through how the senior generation leaders can continue to support the family enterprise.

“One of the reasons why succession tends to happens so late is that leaders feel they have lost their purpose in life once they hand over the reigns.  When that happens, it delays succession beyond when it would best benefit the company.  It also deprives the family enterprise of someone who can still add tremendous value even when no longer leading the business.

“So think carefully about the role or roles that the senior generation can play once the leadership transition takes place.  That may be as an informal advisor to the CEO or on special projects within the company.

“Or it might be focused on something outside the core business, like training the next generation, starting something new, or leading the family foundation.

“Regardless of what it involves, having a clear place to land will make the transition go far more smoothly.”

Adapted from: “Succession concerns hound family-run firms” by Josiah Go, Philippine Daily Inquirer, September 22, 2014, page B-2

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