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When a King comes to power his first act is to select a Crown Prince. This, he does for the continuity of his family bloodline to rule his Kingdom. If no heir is selected and the King dies there will be dispute and fighting for the next King to be. The Kingdom will be disrupted, there will be bloodletting and the Kingdom may even be lost.
The same applies to a family business. If the head of the family does not have a planned succession in place, then when he dies or becomes too ill to function, the family will feud for his position and everyone will have his ‘man’ to lobby for and promote. After all, it is a passionate and emotional time for the next ‘king‘ of the family.
The dream and the result of what a founder (or family leader) has worked so hard for, is the successful passing of the business to his heir. However, he may be afraid that his heir is not competent or that the business will break up without his leadership.
The founder may also feel that by selecting a successor he is building his ‘casket’, that he is telling everyone he is too old to carry on’. It is admittedly a very difficult decision to make, which, he may feel is best left alone and things will sort themselves out in the future. They never do.
In many cultures, retirement is a very emotional factor for the head of the family. If the family is loving and united and if the family head feels that he would still be looked after financially and emotionally by the family members and his status would be maintained and that the family would look at him as a Godfather and advisor, he would then feel comfortable and secure to hand over the ‘reign’ to his successor.
However, if the head of the family feels that the next generation is not capable of replacing him and assumes that the business will collapse without him or if he is afraid of losing his status in the family as well as in the community and if he has a fear of losing his personal identity, he would not let go of his control of the company or the family.
At the same time, the family successors feel that there is a conflict of opinion between them and the head of the family. They feel that he is creating organizational confusion due to lack of confidence in their capability. He uses his power to patronize his selected members to give them undue power and favors while avoiding other capable members of the family.
This conflict between the head of the family and his successors ultimately leads to family conflict and the future of the family becomes bleak and may even collapse.
Therefore, for the continuity of the family business the founder (head of the family), as he has grown older must plan ahead and establish a succession plan acceptable to the family and the business, perhaps even five years ahead and phase himself out while phasing his successor slowly in so that others become accustomed to him. An organized succession plan is vital. Letting go when the time becomes essential.
Types of Succession
There are several succession types that can be used to suit a family and its business situations:
- Single Heir – Traditionally, the oldest son. However, it could be a brother/sister or a nephew if the family feels he is the best choice for the family leadership.
- Widow – Sometimes the family has great respect for the founder’s widow and she becomes the choice of the family to stop feuding between different factions of the family.
- Outsider – If there is no clear successor from within the family, an outsider, usually a member of the non-family executive is chosen. He will lead the family business until an heir appears from the younger generation of the family.
If a succession is not planned and a successor is not selected earlier, then:
- The chances of family business survival are slim.
- The family and business are not prepared for the founder’s death. Chaos reigns. Everyone gives orders, taking/not taking responsibility. They fight for senior positions, the staff is confused and suppliers cut credit.
- The successor, if not chosen earlier, will probably not be trained nor groomed for the job. Some members may not even accept him and he may not be competent to lead the family.
- There will not be a smooth orderly transfer of power and the family members may fight for succession.
- The ablest family member may not be chosen and a compromised candidate may be selected.
Not only does a family suffer the above problems but even if the family put its foot down and insist on a retirement plan there will be resistance to the succession plan, as indicated by the OMBI (Owner Managed Business Institute):
- There is the outside resistance : people may not want the ‘Chairman‘ to step down as they do not know his successor; such as bankers and customers.
- The founder retirement resistance : The founder may not want to retire because he does not want to lose his powers and prestige. His worst fear is that he may not know what to do with himself after retirement. All his life his entire focus has been his hard work for the family business.
Various gurus of family businesses have various interpretations and solutions concerning the retirement styles that could be adopted by the Head of the family. But following are a few ways as I look at it:
- The Monarch – he will stay in office and continue to run the company regardless of whether or not he is competent until he dies or is removed forcibly from the company.
- The General – he will retire as planned but he will wait in the wings until his successor makes a mistake and then come back to ‘save the day’ whether or not he is asked to do so.
- The Ambassador – he will retire willingly, but if asked he will stay on as advisor to his successor and help where he is needed.
- The Governor – he will retire willingly and then go on to do something else to suit his needs and pace.
Obviously, the best is the ‘Ambassador’ who retires but continues to help his successor without interfering in the business. He realizes that a competent successor has to lead the business and keep the family together. He is there to help his successor to succeed.
The intelligent and experienced founder (or family leader) will soon realize the most important problem that faces family business and thereafter its survival is the question of succession. It is an emotional issue to the leader and to his family members which may affect each one of them. However, if it is not faced bravely, it becomes the most effective ‘killer’ of family businesses. If the succession problem is put to bed, then all other family problems can be sorted out without endangering the family business. There will be stability and leadership in the family business.
Founders and heads of families must therefore understand fully the importance of succession. They must implement a succession plan. With the family leaders being able to select an able successor, the latter should be trained and groomed over the years to handle family and business problems. Eventually, start to phase the successor into the family and business leadership while phasing out, with dignity, respect and love, the founder or the head of the family. It must be done in an orderly fashion so that it would not disturb the family or the business. Otherwise, the founder may find that the company he created with hard work and for which he sacrificed his life, is breaking up and dying.
Tharawat Magazine, Issue 2, 2009