Family Owned Business Succession Planning – It is a well-known myth and belief that it only takes three generations to completely lose the family wealth. That can’t be the case, can it? Just as a family business can generate family wealth, it can also be the cause and reason for putting it at risk. Does this suggest that the intersection between business and family is complex? In our experience, the answer is yes.
For example, the famous sports brand Lacoste, owned by the French Lacoste family for eighty years, was sold to investors because of a long and bitter conflict between the second and third generations over the management of the company.
Family Owned Business Succession Planning
Gucci, the iconic Italian luxury fashion brand, is another example of how notorious family feuds can lead to the loss of ownership of a family business. The good news is that if business families actively approach complexity, they can lay the foundations for continued business success, asset preservation and harmony.
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Family governance, family business governance, ownership structuring and succession planning are essential pillars of preserving family wealth and businesses for generations, not just the top three. In this post, we look at how they contribute to the complete picture of a family business.
The premise is to create a shared decision-making system for the family based on its history, values, and purpose. Although partly based on corporate governance concepts, formalities are not the focus.
Family Governance facilitates complex and thought-provoking conversations in a structured context and guides family members as they integrate and contribute to the family and corporate network.
Families share ownership of their wealth. Therefore, it is essential to address wealth in the context of values, goals and belonging for its long-term preservation.
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By analogy with corporate statements, what used to be a family statute or charter has turned into powerful stories. Each family has its own story and can be a unique resource for discovering family culture, values and purpose. This part of the family governance framework should resonate emotionally with family members, be meaningful, and involve them. It helps individual family members better connect with their family’s perspective and connect the story to their own experiences. In this way, the personal stories correspond to the larger family story.
This is an excellent basis for communicating and unifying values and goals. There are many paths to powerful stories, the whys and hows. In our experience, involving all family members and working with expert counselors can create a dynamic and cohesive process for all involved. Experts can capture different viewpoints and stories to find a common denominator. This often brings to light shared values and creates an open dialogue about what values are central to the family.
Values can be the deciding factor for a unified community alignment that is robust in meaning and connectedness. It seems perfect for a group of individuals who ideally stay together for generations.
The group is close to defining its mission when there is a common understanding of how shared values translate into concrete actions.
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They then need to agree on principles, systems and processes to act consistently according to their why and how.
An affluent family will include the wealth component in their approach as they usually share wealth and will be interested in preserving it for future generations. Storytelling helps define the purpose of wealth and illustrate related life concepts that inspire and empower: it represents family heritage and culture. Capture the past, present and future, setting the scene for a human context and shared purpose.
The 2021 PWC Family Business Survey shows that written values are highly correlated with success. His data shows that 77% of family businesses with written values say that information is shared transparently and timely between family members and that they communicate regularly about the business.
Only 54% to 57% of companies with no written values made such claims. 69% say family members have similar views and priorities about the company’s direction, while companies with no formalized values reach just 49%. 41% of family businesses with written values have a solid, documented and communicated succession plan, compared to 20% of other family businesses.
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Therefore, entrepreneurial families who focus on their values improve transparency, unite in leadership, and prepare for succession, all essential to the long-term success of a family business. The research confirms that younger generations are highly motivated by meaning and purpose when it comes to their careers and sometimes struggle to find these qualities in the family business. Values can help bridge the generation gap and give them their desired purpose.
The governance framework can become more detailed about asset preservation, the family business and related decision-making as a result of the above practice and experience. It is a system that needs to grow and develop and is probably not feasible in a weekend workshop.
On the other hand, the journey of reflection on shared values, the purpose of wealth and the meaning of family relationships can be powerful and impactful for all involved. It will make challenging discussions more comfortable if there is unity in attitude and belief, and that everything can be found in a compelling story.
Regular family gatherings are ideal for communicating, exchanging ideas, providing new input, making decisions and reviving and revisiting the family story, why and how. A structured and transparent approach balances business, assets and relationships.
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Family gatherings can have an educational component and promote dialogue about family unity, family wealth expectations, corporate involvement, and vision for the future.
Family reunions also help set expectations for the company and include those who are not active in it. Information must be shared transparently to enable each family member to be emotionally connected to the family business and support the shared vision of their destiny.
A family meeting can also be the place to establish family employment policies and discuss succession planning. Finally, it ensures harmony, prevents and resolves conflicts, a strong family bond and an environment of peace and trust.
The younger generation in particular will enjoy getting involved, understanding how the family wealth is managed, sharing their views and developing a sense of responsibility for preserving the family wealth.
Business Succession Planning, Which Choice Is Right For My Business?
A family council is a transition from the family to the family business, allowing family members to keep in touch with the business for generations. A diverse composition allows for different points of view and ensures that all family members feel represented in the family council.
Most of the time, decision-making about the family business takes place during family meetings, but the family council seeks all relevant information from the company’s board of directors and management. It can make recommendations to the family, but the final decision must remain with the family for robust shared decision-making.
Larger families may consider rotating members after a period of time to allow more family members to join the family council.
According to the STEP 2019 Global Family Business Survey, family governance through processes and structures supports communication between family members and helps them define who they are as a group and what they want to achieve.
Family Firm Facts
The level of development of family governance is related to how strong family members identify with the family business. On average, there is a good development of family governance instruments compared to corporate governance instruments. The global trend shows that 25% use career advisors, followed by family employment policies (16%) and formal family gatherings (9%).
The research shows that investing in specific family management tools increases family members’ identification with the family business when families use more than one family management tool. It notes that specific governance tools, such as formal family reunions, family councils or family gatherings, are associated with entrepreneurial orientation and higher levels of achievement.
In this context, the Executive Board, also known as the Supervisory Board, is responsible for overall management, supervision and control.
The Board of Directors is responsible for the day-to-day management and day-to-day operations, including the development and implementation of the corporate strategy, subject to the approval of the Board of Directors.
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There are many variations in global jurisdictions, but we believe that a separation of supervision and control produces robust results.
However, for smaller family businesses, an executive committee may suffice if the family can provide overall direction, direction, and control.
In some jurisdictions, it is common to have a board with executive and non-executive members who achieve similar results.
The aim is to professionalise the family business with clear principles, rules and processes. This does not mean that family businesses are unprofessional or that they remove the family from the business, but that they create a framework for consistent management and decision-making.
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Not all family members are born entrepreneurs. Therefore, clear parameters for board members and their selection, evaluation and remuneration, a transparent recruitment process and cooperation at all levels are essential for good governance and business continuity.
Corporate governance needs to be tailored to the specific family business and ownership structure rather than standard models, and things don’t have to be fixed right away, but can evolve.
Family members in management positions must compete on an equal footing with outside talent. Opening up the family business to outside talent opens up new perspectives and promotes meritocracy. However, the family can retain control at the board level and remain at the helm of the overall management of the family business.
Transparency and accountability are probably the two decisive factors of the company
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