The COVID-19 pandemic has sparked an unparalleled healthcare and financial crisis, inspiring many of us to reframe and recalibrate our priorities, as well as rethink our definition of happiness: what to hold onto and what to leave behind. For the owners of family-controlled firms, the coronavirus crisis also offers a window of opportunity to plant the seeds of their firm’s succession plan.
All too often, family business owners leave their firm’s succession plan on the back burner, even as their retirement looms on the horizon. This tendency is even stronger when, in addition to business concerns, they worry about creating tension among family members or feel a certain anxiety about their future role or life post-retirement.
“The emotional component cannot be underestimated: succession plans based upon purely technical or financial considerations are more likely to fail in the long run.”
For family-owned firms, the succession process is one of the most critical, demanding and time-consuming challenges, a fact overlooked by many owner-managers. Underestimating its complexity, most believe 18 months will suffice to oversee this process, when in reality, it generally takes five years or longer. To successfully navigate this crucial transition, they should keep the following insights in mind:
1 – Flexibility is essential
Succession plans need to be negotiable. The owners of family firms should feel comfortable meeting with family members and non-family executives to explore possible scenarios for the transition, including both corporate objectives, as well as personal expectations and aspirations.
2 – The “how” is more critical than the “what”
The process itself is equally or more important than the ultimate outcome. A professional, transparent process significantly increases the odds of unity and alignment, while promoting business continuity, better retirement provisions (return on capital) and family harmony.
To this end, the emotional component cannot be underestimated: succession plans based upon purely technical or financial considerations (e.g. tax-oriented or wealth management objectives) are more likely to fail in the long run. Before broaching topics like tax minimization and possible exemptions, start with emotions and ensure everyone’s voice is heard.
3 – Expect disruption
Succession is an emotionally charged subject for owner-managers, who hold central roles in family-firm governance structures that often overlap in all three domains: firm management, firm ownership and the family. For this reason, the disruption in roles and related identities should not be taken lightly.
4 – Seek outside advice
Many family business owners entrust their accountants to help them with their succession plan, yet this isn’t always the best approach. While accountants often serve as right-hand advisors for the family, they tend to think in analytical and numerical terms. The result: succession plans that are “optimal” from financial or tax perspectives yet difficult – if not impossible – for family-business owners to clearly explain to family members.
While tempting, business owners should resist the “do-it-yourself” impulse and seek outside advice from consultants and coaches specialized in guiding the family through the more emotional, familial and management-related dimensions of succession.
“For family-owned firms, the succession process is one of the most critical, demanding and time-consuming challenges, a fact overlooked by many owner-managers.”
Family business owners face a barrage of daily pressures that make it easy to postpone succession-related decisions, especially in the current business climate. That said, when it comes to succession, there is no room for excuses: as leaders, ensuring the successful transfer of their firm’s management is one of their most important responsibilities. By taking the lead and starting early, they allow time for the process to unfold and space to explore options that benefit both the business and the family.