Succession: Failing to plan means planning to fail
The most obvious potential ‘failure factor’ for the family firm is the succession process. The transition from one generation to the next is the fault-line in this business model. There’s no point in having detailed plans for business continuity, if the single most significant risk to this is not addressed.
Every family firm has to find a way to reconcile the personal and professional, and the succession process can bring these two dimensions into direct conflict, with both the family and the firm at risk as a result. Conversely, a well-managed succession process can be a rallying point for the family firm, allowing it to reinvent itself in response to changing circumstances and find new energy for growth, diversification and professionalisation. To do this effectively, family businesses need to develop, implement, and communicate a robust succession plan, and do so as early as possible before the actual handover. This is even more important now, when many more people are having children later in life, meaning that the next generation may not yet be ready to take over when the current owners would like to retire.
And yet only 15% of family firms have a ‘plan’ for their succession process. More worryingly, this figure has not risen significantly in recent years. In our experience adopting the thinking and terminology of ‘business continuity’ rather than ‘succession’ can itself be a useful way forward: if the current generation sees succession in these terms it can help them approach it more objectively, and avoid the emotional stresses that can otherwise arise.
As Simon Le Maistre, Partner in PwC’s Australian Family Business practice observes, “Succession planning is even more important where there are some family members working in the business and some not. In many of these cases, issues like ownership and entitlement may not have even been discussed or considered, which means different people are making different assumptions about the future. In these circumstances, we spend a lot of time sitting with family members, to work through a fair way forward. This can prevent conflict, and help the family become more unified for the future.”
The missing middle
What’s becoming clear – both from the survey results, and our work with owners and executives across the world – is that the challenges with the succession process are just one example, albeit a vital one, of a much wider issue. Family firms are proud, and rightly so, of their willingness to take the long view – to think in terms of generations, rather than years, or even months. At the other end of the scale, family firms are good at dealing with the everyday: the nuts and bolts of running a business. The challenge is in the middle: having a strategic plan that links where the business is now to the long-term vision of where it could be. As one survey respondent from the US put it this year, there’s a need for “more transparency in longer-term thinking and a reasonable assurance that there will be consistency in the delivery of that vision.” And that vision needs to encompass the family, the owners and the firm. They are interdependent, and success for the one cannot be delivered without the other.
But as one Australian respondent described it, “There is an absence of any strategy, beyond the annual budget.” In other words, a plan that looks beyond the next twelve months, to a five to ten-year horizon. This is what we’re calling the ‘missing middle’, and this is why so many family firms fail to turn early promise into sustainable success.