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Success with succession
With Sidney approaching his 65th birthday, son George, 24, assumed that it was only a matter of time before he inherited the majority of the shares in the family business. After all, having graduated in English and travelled the world for a year, he now had three months under his belt attending meetings with his father.
Feeling good, George turned his attention to finding a wife with whom to share his prospective fortune. Sitting in a hotel bar one evening, he spotted the most beautiful woman he had ever seen. Plucking up the courage to talk to her, he introduced himself and discovered that her name was Liza. “I may look like an ordinary guy, but it won’t be long before I inherit the family business,” he said. Suitably impressed, Liza obtained his business card and, three weeks later, became his stepmother.
One of the morals of this story is that business succession should never be taken for granted. Indeed, succession is often regarded as the Achilles’ heel of family businesses with only 13% making it to the third generation, 4% making it to the fourth, and virtually none beyond this.
So, what are some of the things that Sidney and George should be doing to buck this trend if they want the family business to continue beyond the first generation?
Well, they might start by considering whether or not they see themselves as stewards of the company for future generations. Deciding what is best for the family and what is best for the business can mean different things, so it is important that they discuss their views. One might see it as a heritage asset to be passed on, while the other might see it as just funding a lifestyle.
Ownership or leadership succession?
In terms of ownership succession, Sidney will need to strike a balance between maintaining control and not holding on for too long, by asking questions such as “How well prepared is George to become a responsible owner?”, “Does George understand the values of the company?” and “What percentage of shares should George receive and when?”
At the same time, Sidney will also have to address how he is going to manage the change in his own lifestyle, and ensure that he has sufficient wealth to be able to retire. Indeed, Sidney might be more inclined to sell the company to George rather than pass it on. Equally important is that Sidney has something worthwhile to retire to. Letting go can be very hard.
As for George, in giving more serious thought to how ready he is to take over the ownership mantle, he will also have to be sure that he understands the personality of the business that his father has created and the customs, behaviours, anecdotes and written codes of conduct that influence why and how things get done. In addition, George may need to move up the curve in terms of learning about making and managing family financial investments.
When it comes to leadership succession, Sidney will have to think about what qualities he would expect in a future leader of the company and what George would have to do to earn his place on the Board. This might mean encouraging George to gain professional qualifications as well as outside work experience before entering the family business.
Is it right to have a family member at the top?
George will need to ask himself if leadership of the family business is what he really wants. Working in a family company is not easy. There can be all sorts of concerns, such as living up to your parents’ expectations, establishing your own independence, knowing what it will be like to work with mum, dad or uncle. With this in mind, it might be helpful to have a mentor to act as a sounding board and a source of support and guidance.
George must also appreciate that being born into a family business does not necessarily entitle him to a management role. If he wants to be respected by non-family employees, he will need to demonstrate a proven track record, maturity and confidence, as well as the ability to bring in new ideas and make strategic decisions.
Careful planning is key
The issue of family involvement may not be at the top of everyone’s agenda when starting a business. But as the company evolves, paying equal attention to the family and the business is critical in ensuring the long-term success of the company. Ultimately, it is all about careful planning and open communication.
With this in mind, Sidney and George will definitely have to spend some quality time together agreeing what is best for the company and the family – and get to know Liza a little better!
There is now a wealth of support and advice available to help family businesses to address the challenges they face, from creating clear plans for succession and preparing the next generation, to resolving family disputes. If you would like more detailed information or would like to arrange a meeting to discuss your needs as a family business owner, please do not hesitate to contact Robert Jacob on 0207 649 4046 or robert.jacob@coutts.com .
www.coutts.com/familybusiness
Mark Evans, Head of Wealth Institute.
