Succession planning: delay it at your peril

It’s tempting to put off the difficult job of succession planning. But if you wait too long, you could end up destroying a profitable business and harming family relationships.

Succession planning: delay it at your peril

I have often thanked my lucky stars that I wasn’t born into a family business. Yes, I might have been worth much more money, but for every success I’ve seen, I’ve come across more failures.

Running any business is tough enough, but when you have family mixed up in it, the emotions involved often become so dominant that rational decision-making goes out the window. And when decisions are based on what’s good for the family, not for the business, it’s the beginning of the end.

Every family business has to face a hard reality: the owner will eventually die, or become disabled, retire or otherwise leave the company, and someone will need to step in and take over.

Yet, time and again, chaos and family conflict arise over succession, particularly on family farms, where there is the added emotional complexity of heritage of the family home and land.

Implementing succession that maintains harmony and places the business in the best hands is the supreme challenge for every family-run operation. It needs informed and concentrated attention. Businesses are all different, and no two families are alike, so there is no standardised succession process. But there are a number of golden rules that pave the road for success.

Thorough preparation
Succession planning is not something you do casually over a drink or two. It needs thorough preparation as early as possible.

Family business expert Janice DiPietro of Forbes Boston Business Council in the US says that in 30 years of advising family businesses, she has never had a client who complained that he or she had started the succession process too early!

The sooner that family members start understanding the three interlocking roles of which they are part – personal, professional and business – the better.

Family members need to fully comprehend the difference between family issues and business issues, and keep them separate. Many leaders of family businesses fail to understand and appreciate these overlapping roles.

To ensure the successful transition of family members will not happen if it is dealt with informally; you need a written, regularly reviewed succession plan to which everyone has contributed. In order to get this done, the first step is to establish a ‘family forum’.

The agenda at every family forum meeting must deal with ‘family issues’, ‘business ownership’ and ‘management’, separately. Members need to be reminded of the conflicts between these roles, and the importance of keeping them from impinging on each other.

The replacement of ageing leaders in the business should be on the agenda of the family forum meeting. In fact, a replacement should always be lined up for a leader in case of illness or death.

Successors also need to be identified to manage the family interests at ownership, directorship and management levels. If family members themselves will fill these roles, it’s essential to develop clear and sensible criteria for selection of successors.

Importantly, they should be the same criteria that would be applied if the business were to recruit from outside the family; in other words, the family forum must be satisfied that the person has the right qualifications, job history, experience, and so on.

Formal process
What is needed is a carefully considered and drafted ‘person-specification’. If you have difficulty composing this, call in a professional employment agency to help you wrap it up, and convince any dissenting family members.

Going through a professional and formal process to draw up this list of criteria will help ensure that properly qualified successors are appointed. It will also give family members the confidence that the selection process will bring in the best person for the job, and that it is sensible and fair.