All over the world, we see examples of successful businesses which are family owned. Often starting from humble beginnings these businesses grow into large family empires.
Here in the UAE region, even more than in other parts of the world, the economic activity is dominated by family owned groups which are involved in all sectors across the board.
Sadly, due to a lack of planning, communication break downs, and insufficient preparation for succession, family businesses more often than not run into problems at some stage. The biggest issues arise when it is time for a generational change. This rarely takes place in an organised manner or as part of a well thought out succession plan.
As a result, we see families torn apart over business issues. What is interesting is that all the concerned parties feel emotionally hurt and are so convinced that they were in the right, that eventually family relationships along with the business relationships end up collapsing. The sad part is that a lot of these problems could be prevented through planning ahead. How often is the CEO changed in publicly listed companies, without even a slight hiccup in the company’s performance?
Family owned businesses need to learn from these companies and plan ahead for succession.
Unfortunately, in family businesses these issues are not given the importance that they deserve until it is too late, and when the unexpected happens such as the severe illness or the death of the Business Leader, there is total confusion about what happens next.
Developing a succession plan is not something you can do in a hurry. You need to allow plenty of time to develop the strategy, train the successor and make sure he or she is upto the task, before you can ever hope to make an orderly transition form one generation to another.
Family businesses are different from other organisations, often the business leader is not only the controlling shareholder but the CEO as well. So when the time for transition comes, it is both an ownership and management succession. This makes it twice as challenging.
If your ultimate aim is to hand over the business to the next generation, you need to invest time and effort in successor development. In addition to the educational qualifications, the potential successors need to know the business inside out. They need to have a thorough understanding of all functional areas and a good knowledge of the industry. In some family businesses, they adopt a practice of sending the younger generation to work in other companies first and learning the ropes that way.
If you are involved with a family business, consider these questions:
- When will the succession take place? Who will be the CEO?
- Will the CEO be from the family or can outsiders be considered?
- What will be the role of the retiring CEO/ Family elder?
- Will the next generation be up to the challenge?
- How do you want the shareholding to be passed to the next generation?
- Will any member of the business not wanting to actively work in the business still be able to hold shares?
- Do you want the transfer of shares to be in accordance with the inheritance laws?
These are just some of the questions that need to be thought about. There are a lot more to issues to consider as well.
If family members are involved in the business it is important that these issues are dealt with in a business-like manner – do not hesitate to get specialist advice and help. These are sensitive and emotional issues and getting outside help can make them a lot less painful to deal with. Professional help in this instance could come from your accountant, lawyer or even a psychologist – or perhaps all of the above.
To successfully develop and then implement a Succession Plan, there needs to be a clear understanding about who is responsible for which areas. Once the roles and responsibilities are agreed upon, it is important to communicate them to the other members of the family and your key employees. In summary, you need to:
- DISCUSS
- AGREE
- DOCUMENT
- COMMUNICATE
Many well established businesses go to the extent of developing a family constitution which documents everything. It is an excellent idea to do so, as it ensures that families do not end up splitting and hating each other over business issues. That is too high a price to pay, I am sure you will agree.
Amer q's Blog 