Why is succession a challenge?
Effective succession in a family business involves multiple challenges. There are of course financial, legal and tax aspects to consider, but there are also several other issues that families face, such as:
- Are there potential candidates within the family to take over, and are they interested?
- How can the choice between several candidates be made while keeping family harmony?
- Is the next generation ready to take over? Are they sufficiently informed, skilled, and experienced? Do they have a leadership profile?
- Is the senior generation prepared to step down and to relinquish control?
- Is there alignment on the long-term vision for the business and agreement on how to get there?
- What are the expectations regarding profit allocation of active and passive owners?
- Who should have the right to be a shareholder and on which conditions?
- What principles shall apply for share transfers if an owner wants to exit the shareholding?
Usually, these questions arise as part of a natural development, when the senior generation starts thinking of stepping down or when a member from the next generation asks to take a more important role in the business. Sometimes, they come as a direct consequence of another event, such as an external acquisition offer, a family member deciding to move abroad and wishing to leave the business. And sometimes they arise suddenly and unexpectedly, for example upon to an accident of a key person or an economic crisis that threatens the survival of the company.
What are the main challenges?
The two main reasons for unsuccessful transitions of a family business are lack of communication and lack of preparation.
Even in families where everyone seems to get along, succession can give rise to situations where both the future of the business and the family relationships are put at stake. Different views, expectations and hopes among the family members are not always openly discussed, and fear of the outcome can also play a role. This leads to uncertainty, anxiety and frustration, which can contribute to conflict or even resignation.
One of the main reasons is the mix and interdependence between the family and the business, when the family dynamics are confronted with the business dynamics, and the principles for working or owning together are not clearly established. Often, family members wear several “hats” (owner, manager and family member), each representing different interests. This can become a challenge, especially if the roles and responsibilities as well as the decision-making processes aren’t defined.