June 3, 2015
One of the most common questions related to family businesses is: how can a successful business be passed on to the next generation?
Many owners of family businesses begin planning the succession while the next generation are still very young.
Succession is a long process. It can generate feelings of great anxiety and insecurity for both the older and younger generations, so it is essential that it is well thought-through. In practice, to be comprehensive, an active succession period should last between five and ten years.
Here are the most important things to consider during a succession process:
Family business owners and executives sometimes comment that the younger generation lacks drive. This is often a misinterpretation: the younger family members are usually keen to become involved in the business, but are waiting for a sign from their elders. In the most successful instances of succession, the process is an on-going partnership between the two generations, rather than a one-off transfer of power. Open communication is crucial to this partnership as it enables everyone to express themselves freely, thus creating a solid foundation for trust and transparency.
2] Good planning
In order to avoid family disputes, the family wealth and the executive power within the family business should be distributed fairly, taking competence into consideration, in a process that is fully explained to the younger generation. Good planning, along with sound communication, will help the family understand why certain decisions were made and help all those involved understand and accept the outcome of the distribution.
3] A fair process
Inevitably, each family member will interpret decisions on the distribution of the family wealth, and executive influence within the family business, in a different way. What may be fair for some may appear unjust to others. The succession process should therefore incorporate clear and transparent rules, and these ought to be applied to everyone without exception.
4] Family agreement or constitution
A family constitution is a document that sets out the rules for relations between the family and the business. No two constitutions are alike. It is extremely important that the family business stakeholders create sufficient time and consideration to draft this defining document so that it is clear and fair. A fuller understanding and implementation of the rules is achieved when each concerned family member is part of the discussion process that defines the rules and principles.
5] Role of the parents
The parents' roles are to transmit a healthy business, and instil their children with strong values and business acumen. But the hardest part for the outgoing generation is to pass it on. Parents must find the courage and resolve to bequeath the family business to their children and to let go.
6] Role of the incoming generation
It is the responsibility of the incoming generation to show motivation and commitment to the business as well as to the family values. And once they take over the family business, they should dedicate themselves to nurturing and protecting it.
Denise H. Kenyon-Rouvinez is the Wild Group Professor of Family Business at IMD and Director of IMD Global Family Business Center.
She will run the Leading the Family Business stream at IMD's Orchestrating Winning Performance program in Lausanne from June 21-26.