Tag Archives: Family office

Are You Really Committed to Succession?

June 26Prof. Josep Tàpies of IESE Business School in Spain is absolutely right when he remarked, “No one assumes that the son of a great violinist will also be a virtuoso on that instrument,”

So when do we consider a succession successful? First, it is when the company’s founder hands over the business seamlessly to the children, along with their spouses without any fanfare nor disturbances in any of the three critical pillars: Family, business and ownership systems.

Second, it includes the transfer of power to the most qualified and deserving next generation leader, who will navigate the enterprise together with his or her siblings. The transition to a chosen successor is a critical decision made unanimously by all the siblings, the BOD and the senior executive team.

The third element in the succession journey is that every strategic move is guided by a family agreement or a charter where governance issues are raised to the family council for approval using pre-agreed barometers. It is also essential for every member of the family council to be involved in a consensual decision-making process under a culture of transparency and respect.

In my family governance work at W+B Advisory, it can take up to 10 to 12 sessions or close to a year to create a family agreement. Why that long? There is no short cut to creating a real and authentic governance process. Just to initiate a transition from an informal set of rules to documenting formal agreements can be daunting for family members who are not used to corporate best practices.

During sessions, family members are made aware of their inherent responsibilities. They are guided on every item covering a slew of code of conduct policies where they simulate a formal meeting and collectively negotiate an acceptable governance solution to predictable problems that will likely happen in the future.

The fourth element is the creation of a Family Business Training Institute meant to inculcate good parenting programs, values formation training, business skills enhancement, shareholders education, a rigid successor program, Board level governance and institutionalizing a culture of stewardship to all family members.

And finally the last element in the succession journey is the creation of a Single Family office (SFO) that seeks to manage and preserve the family’s wealth. An SFO is a private company that manages investments and trusts for a single family. Other services include family governance, financial and investment education, philanthropy, estate planning and tax mitigating services. For ultra-high net worth (UHNW) families ably assisted by my firm, we assist family businesses in pursuing diversification strategies using private equity and liquidity investments.

Tàpies concludes, “All companies are subject to risks committed by governments and managers, but family companies, because of their very nature, can more easily succumb to a series of mistakes. The succession process is a key issue that the family company must confront. It is a long process that requires planning and collaboration with outside advisors. A well-prepared succession requires the intensive training of one or several different successors. It also requires you to establish conditions that will regulate relationships between shareholders, managers and corporate personnel in the future.”

In closing, succession is a new beginning, a process, an ever evolving phenomenon. Most of all, it is a journey. Hence, adequate preparation is key and this includes:

  • An agreement or willingness of the successors to go on the trip
  • A common destination with shared values
  • Milestones for monitoring progress
  • Fuel to sustain the journey
  • Fundamental skills for dealing with road obstacles
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