Tag Archives: W+B Advisory Group

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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Are Your Children Really Committed?

Or are they just working to please you?

When every family member is fully committed, it sends a strong message to everyone to put the interests of the family business first before their own. For founders/owners, family member commitment gives them a certain level of self-assurance that the business will be in good hands when the day the formal handover happens (an event like death or illness of the senior leader).

But how do we galvanize family member commitment? That is a tough question that continues to bother business owners especially those whose age ranges 60’s onwards. Here is a couple of disturbing statements coming from the next generation family members (31 and 40-year old) that my firm, W+B Family Business Advisory, researched and polled in 2017.

Next Generation 1

“My parents offered me future ownership even while I was in college. It felt good being an owner but years later I realized that having zero outside work experience became more of a liability. The only consolation I got was because I never went through the difficulty of applying for a job.  There was also less pressure in terms of going to work. But how I wish I had real work experience outside my comfort zone. It’s been a difficult 15 years managing the business with frequent disagreements with papa. It is a wake-up call and this made me realized that at 39, it’s time for me to make a full assessment of whether I am worthy to succeed my father. I am playing catch up by hiring professionals and doing advance courses on areas I am weak at.”

Next Generation 2

“I have the best of both worlds and couldn’t ask for a better job. Of course friends teased me as a COO (Child of Owner) but at 31 years old and managing 450 plus employees, it’s not bad. I also get to enjoy the benefits of a nice salary, an SUV and unlimited travel benefits. My classmates who are employed are still languishing with low salaries. I couldn’t ask for more!”

When they were asked about the following: future growth plans, managing complexities and balancing growth, how to confront the uncertainties of sustaining the business… their reactions showed serious reservations and self-doubt. Collectively, these were generally the responses of more than 100 next generation successors surveyed:

a. If they really have the skills set like their hardworking visionary parents

b. Their continuing struggle in the areas of decision making and people policies

c. Their concerns related to the pressures of expanding the business

d. Balancing the old and the new ways of managing the enterprise

e. Issue of business longevity, co-ownership with siblings, debt issues

f. Potential conflict among siblings that will predictably surface when their visionary father is no longer around

These are natural reactions that I encounter every day. Therefore, the real challenge for business owners is to confront these questions:

How will we know if those who are actively working in the business have the passion and sincere intention to grow the business? How will we know if they are just after the four P’s –– Pay, Position, Perks and the Potential windfall (ownership) the parents generously and wrongly offered them when they started joining the business.

If these questions remain unanswered or if there are no singular focus in creating powerful commitment initiatives now, these will result to many sleepless nights by the business leader. Expectedly, the road ahead will be less paved and difficult to navigate. Hence, governance should now be the way forward.