Family matters when it comes to succession
Succession is often difficult and needs to be handled carefully, planned well in advance and constantly reviewed; inside a family business, difficult can become dangerous. Families in business often merge and confuse roles – family member, employee, shareholder or all three. Which hat are you wearing at the moment?
To add to the drama there is often years of family history – the son-in-law no-one likes, the family favourite passed over, the woman scorned, the eldest son not suitable to become the CEO or just simply something Aunty Dawn said at Margaret’s wedding 10 years ago that is like napalm at the dinner table.
Families who live together, work together and make business decisions ‘together’, often struggle to get the balance between various roles right, for example, the differentiation between your role in the family and your role in the business – either employee, director or shareholder causes confusion and misunderstandings.
A few simple structures (see ‘Three Circle Family Business Model’ above, explained further in the Family Business Succession Webinar) allow this to be resolved and succession managed successfully – all are good business practice anyway:
Employees – job descriptions, KPI’s and performance review (for all employees, not just family) will mean the role and performance can be properly managed.
Directors – corporate governance structures – a board with, ideally, an independent non-executive Chairman, regular monthly meetings, a standard formal agenda and reporting.
Family members – a family council acting for and on behalf of shareholders to provide direction to the board as to the goals for the business.
Management – often family members who are also senior management – need to identify their role as managers, not family members and be held accountable the same as other employees.
To make this work:
- Start discussing succession now
- Include family members – spouses, siblings, parents etc.
- Look at innovative solutions – Employee Share Ownership Plans (ESOP) are becoming more common to lock in non-family members in senior management roles
- Get good external advice