Succession in any form is difficult to plan, execute, and ensure successful implementation. This is why in so many cases we see companies falter or decline when going through a transition. Family succession is even more precarious due to the intermingling of the business and personal lives of all members involved.
Recently we were shown a great example of a family that continues to tackle succession in a productive way when George Weston Ltd. announced that Galen G. Weston will be succeeding his father W. Galen Weston as Executive Chairman of the food conglomerate. This marks the transition to the 4th generation of this family controlled entity.
In Canada, successful inter-generational transfers are rare, with only 30% of family businesses successfully transferred to the 2nd generation. Only 3% of these businesses successfully transfer to the 4th generation. Needless to say, the transition in George Weston Ltd. is an uncommon occurrence.
So what can be done to help or guide a company towards a successful transition? Here are a few tips to consider for a productive succession:
- Network – the succeeding individual should know and be known by the key players of the company. These people include employees, investors, suppliers, and customers. Each of these key stakeholder groups should be considered and not overlooked. The most common way this is achieved is by having the succeeding individual working in a top management position prior to succession. However, there are other ways to achieve this, such as in the case of George Weston Ltd., having the successor in top management position of a subsidy or related corporation. The key is that the succession announcement should not come as a shock to anyone, but should be the anticipated next step.
- Communication – discussion between the founder and successor regarding the details of the transition such as timing and purpose is important. Equally important and often overlooked is communication from the successor to the founder regarding direction or changes in overall strategy. There is nothing worse than the founder being surprised by changes made after the transition has occurred. This can lead to resentment of the successor and potential efforts to reverse the succession that has taken place. Communication internally to employees is also crucial to ensure the business continues to run smoothly with minimal interruptions during the transition period.
- Defined roles – A post-succession organization chart with clearly defined roles is important. If the founder stays involved and is still acting in control, this compromises the successor’s authority and ability to lead. However, it is often beneficial for the founder to be available in an advisory role as requested. This can aid in adding stability to the transition; although a clear role should be defined and adhered to. As well, if other family members are involved in the business, their roles should likewise be defined as well as who they report to. A disgruntled sibling or cousin can easily undermine a successor’s authority and be a detriment to the business.
Poorly executed transitions can cost the business a lot of money and jeopardize its future.
A productive transition can increase the value and longevity of a company. These are a few of the many considerations that should be addressed when a company is planning for its succession.
Peter Berry, CPA, CA