Keeping it in the family – the challenges of finding a succession strategy

Niall MacKenzie, Lecturer in Entrepreneurship and Family Business, discusses some of the major hurdles to overcome in passing on the leadership baton in family businesses.

We were very fortunate to have Mairi Mickel, a fourth generation owner of Mactaggart & Mickel, present a lecture on family business at the University of Strathclyde recently.  One of her main focuses was succession and the challenges it presents for these businesses. The 2014 Family Business Survey found 90% of firms surveyed had no formal succession plans in place.  This is worrying when we consider the influential impact family businesses have on the economy.  There are three million family firms in the UK, employing approximately 9.4 million people.  These businesses generate almost a quarter of the UK’s total GDP.  The study also revealed that two thirds of business leaders surveyed were considering selling up, however this conflicts with another recent study by KPMG which found 71% of family firms felt continuing the legacy and tradition of their business was an important goal for them.  It’s clear family CEOs need to have a clear succession strategy in place to meet this target – so what is it that is holding them back?

Emotions

All workplaces present challenges during transitional times, but emotions are often heightened within family businesses due to interpersonal relationships and varying opinions.  Who hasn’t had a falling out with their family at one point or another?  Tempers can flare when sensitive issues such as succession planning are discussed.  With only 30 percent of family businesses surviving to generation two and a miniscule three percent reaching the third generation, it is crucial that emotions don’t get in the way of strategy-building.  Communication is absolutely key in overcoming this hurdle.  Treat succession planning as an ongoing process, with regular meetings where all employees and family members can have their voices heard – don’t base your strategy on a one-off heated discussion around the dinner table.  Planning ahead increases the likelihood of a smooth transition and the business surviving.

Time

Studies show that the average age for a CEO to pass over leadership is 62.  Many spend years overlooking succession strategy development due in large part to time constraints.  Focus is targeted towards the here and now, on the strategic and operational running of the business, and vision often does not expand past the current leader’s reign.  When we consider that the majority of succession strategies are planned over at least a four to five year period, to cover all technical and emotional aspects of handing responsibility over, it simply cannot be treated as a last-minute decision.  Instead, succession planning should be incorporated into the overall business strategy with a consistent forward-thinking perspective maintained. This requires time for all parties to get used to the new arrangements and working towards them.

Reluctance

An unwillingness to address succession planning can come in two forms – from an uninterested heir who would rather pursue an alternative career path or from a CEO who isn’t prepared to let go of the business.  In the first scenario, a less traditional route to handing over the title may have to be examined.  It might have been planned in previous years that the oldest child would take the helm.  However, is there a younger member of the family who may require more experience but is committed to the business’ success who might better fit the role?  More investment in their training for the position might be required but this will be well worth it if they are passionate about your company.  If the current head of the business refuses to plan for their own departure and you are the family member encouraging them to do so, remind them their leadership will still be regularly sought after the transition – 32% of CEOs who stepped down from their title continued to influence key decisions in the background.  Let them know their mark will still be firmly imprinted on the company, but if anything bad was to suddenly happen to them, the business would be in the safe hands of their family. For many CEOs of family firms the job has been their life for quite some time – retiring into a role is thus critical.  Going from living and breathing the business to nothing will not make for a smooth transition in either business or family aspects. Identifying a role after life as a CEO is a critical part of the process – it reduces reluctance to leave and gives the successor the chance to settle in.

Succession is often an event rather than a process – it happens as a reactive imperative to a situation thrown up by circumstances often outwith the control of the business and family. The result can be extraordinarily stressful for family and the business alike. Prior planning for succession can take much of the stress out of such situations and gives everyone a goal to work towards, a clear roadmap for taking the business forward and improve business longevity. Successful succession takes many different guises, but is most easily recognised by the happiness of the family and the business.

What do you think is the main obstacle in a family business surviving past the first generation? Share your comments below.