“With all their complicating factors, most family businesses do not make it past the first generation, and even fewer past the second or beyond,” noted EY Global in the global survey of executives of the world’s largest family businesses.
To keep the business in the family for generations to come, family businesses must embrace the succession issue and plan it, instead of avoiding it, the study authors said, noting that they need to do three things well:
1. View succession as a long-term process. Even succession planning is no guarantee of a smooth succession, the study said. Planning is important, but it means little if it’s not a continuous process in which all new information is included in the conversation and all relevant stakeholders are firmly in support of it. And, of course, the successors must be willing, trained and prepared to take over.
2. Clearly define who has the responsibility for succession. It turns out that most family-owned companies have stepped up to the plate in that regard: More than 87% of the businesses surveyed in the study “have clearly identified who is responsible for succession, implying that processes for handling traditional transitions, as well as potential emergencies, are well in place.” Boards of directors are most often responsible for succession.
3. Work steadily to prepare the next generation for leadership. “Training and educating the next generation are critical elements of preparing successors for both ownership and leadership succession, and the process starts early, sometimes in childhood.” Family-business leaders said that work ethic, leadership and entrepreneurship are the most important attributes they can nurture in the younger generation. Businesses typically require at least three years of outside management experience before family members are allowed to assume management positions in the family business.
So while succession is a unique challenge for family businesses, it can be done well. It just takes some planning, determination and, often, patience.