Succession planning entails the process of identifying and training potential candidates to fill up key leadership roles in a company for the future. In the case of Family owned Businesses.It means choosing an heir from the younger generation to take over the running of the business. Succession planning is very often underrated, yet it is a crucially important process that needs to be followed by leaders of family business to ensure continuity for multiple generations to come.
Even though most family-owned businesses across the globe desire a successful continuity of their business from one generation to the next, this is easier said than done because statistics shows that more than 70% of family-owned businesses get sold off before the second generation and only less than 10% of family businesses survive till the third generation. The transition from one generation to the next is a difficult process, but it can be successful if planned well in advance and implemented in an orderly fashion through a transparent process of planning the succession. It is seen that many families struggle through succession issues, but a structured approach has helped create an amicable succession plan for some families.
Succession Planning entails the process of identifying and training potential candidates so that they can fill up key leadership roles in the organisation. A clearly defined succession plan ensures a seamless transition of power and management. It instils confidence in employees and investors about the future of the company.
It is pertinent to point out that the succession planning is a long term process spread over years and cannot be construed as a one off activity. It can be addressed through a structured process, which can help in continuity.
Unlike other businesses, family-owned organisations have the additional burden of ensuring personal relationships within the family. In large multigenerational families, succession often becomes a sensitive subject which can lead to family discord, court battles resulting in the destruction of the family’s reputation. Hence, good governance practices are essential, as they open up lines of communication among family members and reduce discontent. Setting up family groups, designing family protocols are all part of creating good governance structures.
Many times these days, younger generations are unwilling to be successors in family businesses. The youngsters are well qualified and well-travelled individuals with their own interests. Hence, they aim to venture out on their own and are reluctant to take over reins of the family business, as was the practice in olden days.
To create a succession plan that works efficiently, one may identify a Family Office that has extensive experience in succession & estate planning and has a good understanding of how a business family functions. Multi-family offices have qualified and experienced investment professionals, lawyers, and financial experts on board that can assist in getting the succession & estate planning process right for family businesses. In conclusion, establishing clarity in the dispersal of wealth in an intricate structure of large family and business inheritance is a wise act. This must be contemplated early and in a
phased and planned process to avoid ambiguities. To reap the benefits of hard-earned wealth, it is imperative to have a sound succession plan that brings transparency and aids in continuing and flourishing the legacy.