Succession is the most critical challenge faced by family businesses since it touches the very heart of family and firm: its foundational bricks and future legacy.
It’s difficult because it affects people – predecessors and successors, the company and the owner family – as well as complex since it can impact all three different spheres of family-controlled firms: ownership, governance and management.
Beyond these three domains, another aspect – succession in the company vision – is often overlooked or not addressed with sufficient realism and rigor: is the firm’s competitive position strong enough when the time comes for the generational handover?
Laying the foundation for future generations
Each generation is charged with upholding, improving and developing the business and leaving it in the best possible shape for the next.
Sometimes, however, the firm’s corporate strategy, competitive and market shifts, and regulatory and technological changes can alone or in combination render the business model obsolete, leaving its leaders without a clear vision of how to lead the succession process while ensuring the company’s competitiveness and long-term survival.
In these cases, it is necessary to establish the company anew, which may exceed the owner family’s capabilities and resources. An approach based on mere stewardship and corporate revitalization will fall short: the owner family must also be willing and able to transform the company by reinventing its value chain and business model.
This process requires a crucially important strategic-thinking exercise and clear-cut answers to specific questions:
Are we the right owners to lead this transformation?
As a business family, are we equipped to provide the requisite knowledge and vision to develop the new company?
Do we have the resources and economies of scale necessary to turn our company around?
If so, are we willing to assume the level of risk and its associated investments?
Does the next generation agree on adopting a new business model to re-establish the company?
Do these family members possess the needed entrepreneurial and leadership skills?
At this critical crossroads, a SWOT analysis of the owner family is highly useful to assess members’ value contributions and how they stack up against the firm’s current challenges.
As an example, when companies seek to expand their geographical scope or innovate using the same business and organizational model, it’s not unusual for them to call on outside management experts for guidance.
A common vision for the future
Now consider when the business model is no longer competitive and needs to be re-invented: these plans are far more daunting.
In these cases, the owner family must carry out a collective analysis and reflection on the current situation of both the company and its shared assets, and agree on a future vision and how it will impact the family’s global assets.
Without a clear and common vision, the decision to continue as owners of a family firm isn’t an obligation from a legacy or an emotional standpoint. This is where responsible shareholdership comes to the forefront: shareholders might prefer the company to operate under new owners to safeguard its long-term sustainability.
Given the potential emotional land mines and difficulty in making these decisions, family firms may be tempted to avoid them altogether and ride on the currents of organizational inertia.
The vision must be in the hands of ownership, with governance and management bodies charged with translating it into solid strategies and business plans.
As John Naisbitt observed, “Strategic planning is worthless unless there is first a strategic vision.”