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Chap4 Succession
- 16. The Family Business House THE FAMILY’S VALUES THE FAMILY’S SHARED VISION VISION FOR THE FAMILY BIZ CLIENTS STRAT OPTIONS FB’S RESOUR CES FB’S STRATEGIES FB’S STRUCTURE
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- Whether or the the FE has written succession plans or that the founder has been thinking about it, the true test of succession is the performance of the business after turning over the management to the new wards.
- Ownership Succession Complete and irreversible legal succession from one owner to another. Not necessarily from parents to children. Leadership Succession Transfer of ultimate management responsibility from the person currently in charge to another person regardless of family ties. Ownership might seem more important because owners have the full right of determining the leader. This is done either through appointment by the founder or by the bod Although not much attention is given to ownership succession because of its attendant implications in taxes . . . Transfer taxes, estate taxes . . Which is better left to financial planners and tax lawyers, still it is important for FE’s to understand ownership succession because of the far reaching effects of this event. The effects will be felt by future generations.
- There are generally three stages of succession. But it is curious to note that different families develop different succession processes. Some of these general stages might stretch for years. Other families experience these stages abruptly . . . Especially in times of crisis like death in the family etc… where the family has no other choice but to deal with the event. The hot phase is where the changes occur. It can be divided into six stages which will be discussed in the next slides. The post succession phase is where the newly defined situation is installed and the balance within the family and the business is established and secured.
- Since succession is an event that is sometimes not welcome because of the varied emotions attatched to it (anxiety etc)… it important that this inevitable event be prepared for. Actually this is a lifelong process because supposedly, founder have their whole lifetime to prepare for succession. The more the family members are informed and trained to interact in a mature, respectful way, the more they will reap the benefits of the succession process.
- Do we want to do something together as a family? How do we want to work together? What do we want to achieve together? What resources do we have and how do we want to develop them?
- Research demonstrates that independent, mature personalities who have built their own identities are much more able to communicate within the family and ownership group in a constructive way than those who have not. Once the family’s shared values are discussed and agreed upon, an ownership strategy must be put in place. This requires ownership structure that ensures the realization of shared goals. Preparing the business for succession is closely linked to the preparation of the family. When the family has established its basic direction, outside advisors can be called in to help the company prepare for succession. Revisit company by-laws, constitutions, policies and guidelines. Again it is very important that everybody in the FE is mature enough to understand and accept succession otherwise the whole process will fail.
- As mentioned, these are the six steps in the hot-phase of succession. The build-up of developmental pressure The triggering phase The disengagement, in which old truths lose validity Exploration The choice The commitment
- Clients tend to get concerned about continuity and demand proactive measures like beefing up bod, organizing structure etc. FE members begin to ask about their future when the transition takes place.. Whether or not they will be retained. . . Their compensation schedules etc. Sometimes, there are more proposed solutions in this stage to undefined questions. Various legitimate self interests are expressed in a never ending stream of discussions. The problem in this stage is to organize the process by finding capable third party people who can help. If this stage drags along, the company may be damaged by loss of focus in running the business. Fmaily harmony may be harmed.
- Purposeful triggering assures more control than leaving the process to chance. Even the hiring of a consultant is a trigger to succession. Remember that nobody wants to talk about succession.. Especially in our culture where because talking about succession would be mistaken as though we want the founders to die already. How decisions will be ultimately made is dependent on on family and company culture. Skilled management of family conflict is one of the key success factors in succession process. Timing of ownership transition is critical. It is suggested that ownership be transferred a few years after the “successor” takes responsibility in running the business. This way suppliers and clients will not get confused as to whom to deal with.
- As business family approaches ownership transition, family discussions should focus on business and family life after the transition especially regarding how siblings or cousins will relate to one another. Financial and other needs of seniors should be addressed. The need of seniors for recognition is more than the need for financial rewards.
- Ownership succession drives leadership succession as the owners decide who wll lead the business. Therefore leadership will lean on who owns… but the issue on Who Owns carry with it a lot of other decisions whether family or business related. That aside from the ownership structure that goes along with it.