PASSING THE BATON TO THE NEXT GENERATION

ADIB RASHID

Managing any business involves many challenges. But managing a family business brings with it a unique set of challenges, many due to the close emotional relationships involved. One of the most difficult issues for a family business owner to consider is the succession of their business and the long-term success of the company. Adib Rashid explains more.

There is a famous saying that “It is not what you leave your children that matters, it is what you leave in them” meaning that families need to prepare their children with values and behaviours before wealth. It is important for the next generation to understand the history of the family and the family business and the challenges that the older generation has faced to be able to build on them and for the following generations.

Unfortunately – succession planning is not always the top priority for business owners to consider. There is a natural hesitation for owners to deal with succession issues because

they associate it with negative connotations of retirement and death. Starting the succession planning conversation early on is the key to understanding the realities of what’s involved in the planning process.

Here are some key concepts that you should consider when embarking on your succession planning journey:

1. Mentoring and coaching the next generation and supporting them with transfer of knowledge and knowhow is key for successful transition. This is not an event but more of a process that needs time and commitment from all involved. It needs to start from an early age, building the character of the younger generation, giving them ‘war stories’ about the experiences of the older generation and the founders and giving them gradual responsibilities to allow them to build their own experience and connect with the professional environment and other colleagues.

2. A prepared, written succession plan outlines the way the business should be managed after the founder’s retirement, death or disability. It also entails the effective transfer of management of the business, along with its core values, culture and traditions.

3. Setting out clear expectations and roles for all family and non-family members in the business provides clarity for the future and helps minimise the potential for future conflict between active and non-active family members, reduces sources of contention or ambiguity and ensures that they are managed in the early stages of the planning.

Many founders are in ‘fake retirement mode’ where they think they have retired and delegated the responsibility to their next generation, while in reality they still intervene in every decision and over-step the authority they gave to their children. In many cases, long standing employees play on this and keep going back to the founder to correct or change decisions made by the younger generation. This undermines and can be demotivational for the younger generation members, making them unable to manage the business which can then create tension and disruption to the growth potential of the business.

When it is time for the founder to make the final decision to exit the business, there are some options available. The founder needs to look objectively at whether the business should be passed down to the next generation, transitioned to a third party or sold altogether. Factors such as age, desire, skill sets, management experience, family dynamics and the current state of the business should all be considered when making the decision of how the business will be led when the final decision is made to exit the business.

When thinking of the next steps, it is important to start planning early, have a clear vision for the future and involve the next generation to achieve a successful transition too.