The number of family businesses successfully being passed on to the next generation has been falling. Five years ago, approximately a third were being transitioned to second-generation leadership. Today, this number is closer to 19% or less than a fifth. One of the main reasons for this is thought to be a lack of a robust succession plan. A comprehensive, co-designed transition plan put in place as early as possible can help to prevent obstacles from arising and ultimately the business from failing, allowing it to continue throughout the generations.
As part of his attorney-at-law practice, Dr Edgar Paltzer specialises in assisting with succession planning for family businesses. As succession planning can be highly complex, it can be useful to have a neutral third party overseeing the process, especially a lawyer who will be familiar with the legal side of things.
Obstacles to Succession Planning
No matter how successful a business may be and how willing the successors are to take the reins, there are several obstacles to succession planning that may arise. Being unprepared is one of the main obstacles. Often, even though children or other members of the family have been a part of the business, they have not been prepared for what it means to be a leader. They may have a specific function that they focus on, or the current leaders may have been unwilling to relinquish control enough to teach the next generation the crucial skills involved in the daily management of the company.
Embrace Perspectives
One way to begin overcoming obstacles is to demonstrate a willingness to embrace the perspectives of others. When each generation discovers their shared values, this is something that can be built upon. Often, the older generation is unwilling to listen to new ideas from their younger counterparts, while the younger generation may be unwilling to step into a leadership role if they feel their ideas are not valued. Research from PwC shows that businesses with clear, written values are better prepared to transition to new leadership.
Start Early
The earlier prospective future leaders can be introduced to how the business works, the better. Implementing strategies such as shadowing programmes, family councils to share information about the company and progressive developmental opportunities can help to ensure that the next generation is fully prepared for the challenges they will meet once they finally take over.