Throughout my formative years I spent a lot of time on farms. Both my paternal and maternal grandparents were farmers, and as a young man intrigued by the business world, I was always curious about the difference between the two operations (which were located less than 30 kilometres apart).
Each family group had 4 children – two boys and two girls, but the way the business was transitioned to the next generation, and subsequently sold (in each case) provided great insights into what works and what doesn’t when it comes to succession planning in a family enterprise.
Its easy to say that failing to plan is planning to fail (it is!), but there are other reasons that private enterprises fail at succession planning, or never get started on it in the first place.
1. Unspoken fears and avoidance around the capability of key people and successors.
Nobody really loves conflict – and when family is involved, relationships obviously come with more history and complexity. Unfortunately, this often leads to key people biting their tongue, ‘sugar-coating’ or building resentment behind the scenes, rather than having open and reasoned discussions about the real skills, gaps and risks of each person involved in the business.
This gets even more complicated where spouses and life partners are involved and are absorbing the resentment of those concerned.
2. Not knowing what ‘next’ looks like.
For the older generation of family members who are about to transition or retire, taking 6 months off and seeing what happens is not a strategy… in fact, it usually means, “I’ll have a break then come back to tell you what you should be doing”.
If you don’t know what your typical week looks like in retirement, then you’re probably not ready to move on.
3. Failure to address and educate family members on the difference between income, equity and control.
It’s easy for lines to get blurred, particularly when there may be a history of everyone getting paid the same in a family business. At it’s worst (from an income perspective) I’ve seen a family business pay one sibling who is an effective CEO exactly the same salary as his brother who rarely turns up for work and has no functional responsibility.
Whilst it may be understandable for equity holdings to be the same, who actually directs the business should also be a matter of capability, not ‘equal say and equal pay’
4. Failure to set performance standards for principals and successors.
It’s not uncommon for family businesses to claim a good work culture and strong loyalty from their people, but all too often there is a lack of measurement and accountability. Employees often get treated ‘like family’, but this can include the acceptance of excuses and lack of consequences for poor performance (across the board).
This makes it hard to define the standards required for people ‘stepping up’ in the business.
5. Choosing the wrong ‘independent’ advisors
At some point, most family businesses realise they need some external help if they want to nail their succession plans, but unfortunately the selection process is not always sound. Often the strongest family member will try shoe-horn in someone to try drive their agenda – or the business can move too quickly to establish a board of subject matter specialists.
Key here is to find a deeply experienced succession advisor with strong business and financial acumen, but also deep empathy and understanding for the dynamics of family business. The right person can then drive the process of building out a board over time, once they have established trust and a mandate from all family members.
As we have mentioned in previous blogs, succession planning is a process and not an event and requires considered investment to get it right. At Checkside we have a long history of helping manage these discussions and issues to help family businesses reach their full potential.
If any of the above roadblocks resonate with you or your family business, then you will benefit from attending our upcoming succession planning workshop. Register now to secure your place as numbers are limited.
Wednesday 13th November, 2019
Discover why succession planning is integral to the future of your business during this exclusive workshop with our founder, Chris Bates.