Let’s open up a discussion about family businesses — and what the future holds for them — by digging into the fundamental marriage between our personal and professional worlds. This will create the framework through which succession planning can be viewed realistically.
In particular, let’s focus on how the challenges of the 21st century affect the family and the business. Each face changes in the wake of globalisation, international multiculturalism, workforce displacement, and disruptive technology. Change is the new status quo, and it brings a lot of distractions along with it.
We should celebrate some of this change. In many ways, it is easier to start a family business in 2017 than ever before thanks to swollen capital markets and the ability to reach customers around the world. The daughters of family businesses have more room than ever to step into the business world as leaders and entrepreneurs. Businesses are learning to be environmentally conscious and socially tolerant.
On the other hand, families are fragmenting in unique ways. Children can, and often do, move far away from their homes and traditions. Holding the family together and promoting a common, proud family legacy is now a great challenge.
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International business competition is an omnipresent threat as well, whether from direct imports or foreign investment funds.
Why are these things important?
The new trends in family business succession planning are caused by, or are reactions to, these external pressures. Some succession planning principles haven’t changed — things like the importance of communication and early planning or the need for a formal process. The old rules are still important bedrocks of good succession plans. The new trends, however, tend to speak to the challenges of our modern age.
Trends that matter to succession planning
From a sociological and management point of view, there are a few dominant trends that matter to succession planning in family businesses:
- Aging of family business executives;
- Rise in attrition among staff and future leaders; and
- Loss of family continuity.
Family continuity is so crucial for multi-generational success in family business, and there is no quick fix for a family that’s lost its sense of shared history and pride. Harvard Professor John Davis summed the problem up well:
“I do see this increasing sense of freedom in families that is good to some extent but also leads to a sense of fragmentation in the family’s purpose, and energy, and discipline… When you think about it, you know, parents even thirty years ago, certainly forty or fifty, had more influence in their children’s lives… and that is not the case today.”
The families that best handle these challenges will be those that implement succession planning processes that adhere to best practices. Some of these are timeless. Others are specific to the modern era.
Modern best practices — what can you do?
We can’t cover every concept or procedure that you need in a well-developed succession plan, but these are some basics that will help you navigate the needs of the future.
1. Remember to communicate early and often
Healthy, honest, open communication should be at the core of virtually every healthy relationship, whether personal or professional. Family members and business partners need space to air grievances or share ideas.
If you are a top-level business leader, it is imperative that you foster an environment where individuals can safely express emotions and discuss important topics. Create regular meetings around the board room and the kitchen table, share your visions, and ask for feedback.
One more communication tip: include multiple generations. Let each generation feel heard. Use time together to build stronger family bonds.
2. Target processes and well-defined goals
Succession plans should be in writing, and they should be created through a proven, shared process. We firmly believe in the value of a written family constitution, within which the process of cultivating talent and executing smooth transitions should be identified.
These processes should clearly define what the goals of the business are, what the goals of the family are, and they should acknowledge that succession planning is a long evolution. This can’t be solved in a single meeting.
Processes should be led by senior management and should emphasize non-traditional family structures. Modern family businesses are very diverse and often include separated couples, second spouses, step-children, and even close non-family members who are integral to the business’ success.
3. Establish a talent development program
You have to get out in front of attrition and the potential for disinterest among younger family members. Even if you already know that you want your son or daughter to take over someday, you still need to integrate them into the business effectively — and even prepare for the eventuality that they may not want the job.
Look to outside talent. Make hiring and promoting decisions based on merit and experience. Make an effort to detect gaps in organisational talent and address them systematically.
David Harland CPA is managing director of FINH, an organisation that specialises in the provision of advice to family business across the Asia-Pacific region.