Family Business Succession: Why Passing the Baton becomes a Tug of War
Not long ago, I sat with a senior shareholder of a family conglomerate as he recounted his family’s troubled succession journey. “I should just split everything up and let them go their separate ways!” A frustrated father, he was tired of the squabbles between his three children over who would be in charge and how decisions would be made once he retired from the enterprise. “It would have been better for everyone…” He was resigned to the notion that his succession methods were not working, and he likened the experience to opening a Pandora’s Box that released all sorts of misery and evil upon his family.
Like him, many family enterprise leaders are wary of succession planning. One need only look at the data to see evidence of this. In a 2019 study by PwC, 53% of family businesses in the Middle East listed succession planning as a key challenge in the coming 2 years. An updated study in 2021 found that 65% have next-generation family members working in the business. Yet the same study also noted that only 33% had a robust, documented and communicated succession plan in place. If this is such a critical challenge, why are so few doing something about it.
In the questions and answers below, I try to present a summary of succession planning in family businesses and the challenges involved.
A. What is Succession?
• First let us talk about what Succession is not. Succession in a family business is NOT the transfer of WEALTH, which ultimately gets all the headlines. Succession IS the transfer of OWNERSHIP from one generation of owners to the next. Ownership of assets, of position and role, etc.
• With ownership come the inherent responsibility to take care of what you (and your family members) own, ensuring its security, growth and long-term sustainability. People who own homes will understand the pains of properly maintaining the asset to ensure lasts a long time.
• Thus, succession is ultimately about LEADERSHIP, not power, and succession planning is about nurturing good stewards for the future and not about anointing an heir. Owners who think of succession like a monarch choosing an heir (the power to give power), give it heightened importance and pave the way to politics and potential power struggles. Owners who instead treat the challenge of succession as a long-term project of nurturing future leaders and passing responsibility to them, end up creating a sustainable and values-driven approach to preserving the family legacy.
B. If succession is about leadership, then where do we need future leaders?
• There are 3 main areas requiring leadership. The first area is the FAMILY. Leaders here ensure strong family unity, managing major family projects, dealing with family issues/crises, and ensuring the proper development of younger generations of family members.
• The second area requiring leadership is the BUSINESS. Leaders here ensure strong alignment between the family leaders and the business leaders (both family and non-family) on main priorities of the business, as well as effective governance (Board, Executive Committees, etc.) to both drive and track the performance of the BUSINESS.
• The third area requiring leadership is the OWNERS. Leaders here ensure strong alignment amongst all shareholders (both major and minor ones) on the future of their assets. They may also lead wealth management strategies through a family office which executes on a unified investment philosophy to maximize wealth creation. They may also take the lead (in conjunction with FAMILY leaders) on the philanthropic/charitable work of the family. A unified owners’ group is critical to the proper functioning of a family business.
• Thus, succession is about installing leaders (and sub-leaders) as well as leadership processes to manage the 3 growing areas (and their sub-areas) of the family group.
C. What makes succession complex in family businesses?
• The first reason is a mismatch in mindset of leaders and future generation. Older generation tend to be concerned that younger generation members are not ready / prepared to take on the job. Some are concerned with disrupting the business especially in times of stress or crisis, not realizing that these times offer the best learning opportunity. The younger generation also tend to be impatient, wanting to do too much and move too quickly for the older generation.
• The second reason is a lack of structure in succession. Good succession plans have a 3-to-5-year horizon and plans to ensure that we are nurturing and empowering the successors and also preparing the system for succession. Recall that multiple areas need leaders in a growing family business, thus a structured approach is required.
• A third reason is the presence of conflict and a lack of good systems to manage differences among the family. Conflict in the family sphere will seep into the business sphere and vice-versa. Patterns of conflict that have played out from a young age are often repeated in the board room and in front of outsiders.
• Besides these, there are other complications specific to some families, such as old guard employees that sometimes are fearful of succession and become a bottleneck.
Think about countries with good governance systems, and what you will notice is that in all cases when faced with crises, governance provides stability to the citizens. Even elections (leadership succession) continue as planned even if the country is in the middle of dealing with a crisis. Leaders of successful family businesses take this responsibility of creating a robust and sustainable culture of succession as one of their most important priorities. They treat succession as a longer-term project requiring the alignment and involvement of multiple family leaders and next gen members to drive it to success. They set clear guidelines and apply them fairly and consistently. We hope you found this brief primer useful. For any questions, kindly contact us.
Director, Soul Family Business Advisors
Phone: +971 50 552 5705
Bob Kohli is a Director and Senior Advisor at Soul Family Business Advisors. He has 15+ years of experience in global advisory & consulting, including 4 years at a leading strategy consulting firm Bain & Company, and 8 years as a family business advisor. He also serves as an Independent Board Director for a Saudi-based family conglomerate.
Bob’s specializations include family enterprise governance and change management. He supports families to work through their differences and achieve intergenerational alignment on their future legacy. This includes supporting the development of family constitutions & councils, conflict resolution, next generation coaching & development, and succession planning. Bob also specializes in business turnarounds and transformations centered around robust governance and change management systems, developed in close collaboration with family owners, board directors and business executives. These include an aligned vision & strategy, strategic management, and performance management. He has worked closely with family business leaders, C-suite executives, and senior management through tough periods of change including the 2009 global crisis and the COVID-19 pandemic.
Bob holds an MBA from Columbia Business School in New York and a B.S./M.S. in Computer Science. He has obtained his Advanced Certificates in Family Business Advisory and Family Wealth Advisory from the renowned Family Firm Institute (FFI) in Boston. Bob is also an Associate Certified Coach, certified by the International Coaching Federation and a Professional Co-Active Coach trained at the distinguished Co-active Training Institute. He has over 250+ coaching hours and actively mentors young next-generation leaders and entrepreneurs.