Succession Planning For A Business

Succession Planning For A Business – Do you see “Successor”? This HBO drama about a family business is a thinly veiled satire of the succession drama that seems to have played out at Rupert Murdoch’s News Corporation for the past three decades. And if you have experience running a family business, you can relate to some (hopefully not all!) of the developments.

Here in Mexico, I have recently been involved in discussions with a leading family-owned SME in its market, a company that is very profitable and has been operating internationally in its 35-year history.

Succession Planning For A Business

The founder/CEO is on the verge of retirement and the next generation (a brother and sister) has taken on more and more operational responsibility. One brother is in charge of sales, the other is in charge of finance. Because the brothers lacked their father’s technical and managerial skills, the family agreed to provide three senior employees with mission-critical technical and business expertise.

Succession Planning For Business Owners

The family is considering forming a new business entity and they are debating the allocation of shares, but they want to retain control over decisions while institutionalizing the business to strengthen business management principles. These problems are on their way to be solved harmoniously (not always the case for family businesses!), but there are many considerations, and as a lawyer I see (and am happy to point out to my clients ) many potential obstacles.

So what should family businesses think about leadership succession planning? In Mexico, as well as everywhere else, there are three main ideas:

1. They should create a clear (and codified) succession plan. In the case of the company I mentioned above, there was never a formal strategy to replace the founder with his children; It just happened that one day they started working for the company and over time took on more responsibility. This is not unusual.

2. They should develop (and codify) the business strategy and corporate governance structure. In most family businesses, decision-making is centralized, meaning the founder

Steps To Successful Succession Planning

3. This brings me to the need to develop (and codify) a risk management strategy. Most SMEs do not have one. This is true in Mexico, but is by no means unique to Mexico. Most SMEs are reactive, not proactive, because they don’t have – or don’t feel like they have – the “what if?” Resources to spend on finding answers.

Obviously, the lack of a succession plan can potentially cripple a company if the founder suddenly becomes disabled or dies. In Mexico, only 73 percent of family businesses have a succession plan, and my suspicion is that some of these plans are not very good. In larger and more complex organizations, or organizations in the midst of dramatic growth, succession planning may involve significant changes in operating procedures, e.g. The founder’s responsibilities can be divided among several people.

Succession planning may include formalizing the management process; Agree on decision-making protocols and compensation structure for post-founder management and shareholders; developing a training program for successive managers; and may decide to hire external managers to fill any gaps in the successor’s managerial expertise.

In my experience, many family businesses find it difficult to codify the business strategy because the founder dominates the decision-making process. This may be especially true in Asia, where respect for elders is a fundamental social value. Also, it’s hard to argue when the Pope says, “I made it!” However, the lack of a codified business strategy, and accountability for that strategy, can be a liability in running a family business and can make the business vulnerable and uncompetitive.

Engaging In Succession Planning

Governance can be deficient in family businesses because there is less public control and a lower level of institutionalization. But in order to compete, for example when attracting/retaining the best talent, companies must be accountable to employees, customers, suppliers, distributors and other stakeholders (including regulators). Codifying compliance and accountability processes is a vital step in professionalizing an organization.

The first risk that a family business must manage is the well-being of the family members who run the business. I covered this above in the Succession Planning section. But there are other risks that must be taken into account, and processes that must be codified to guarantee business continuity and protect it from possible liability claims (eg in case of environmental issues).

Succession planning is so different from estate planning that it can be difficult for people to deal with the lack of change. A succession planning process driven by the founder’s desire to retire can be much easier to navigate than the next generation’s concerns that a founder is no longer up for the job and running the family business.

But as is true of estate planning, codifying the wishes of all parties with the administration in the process is vital, and should be done at the earliest opportunity. And getting advice from trusted legal counsel is important in family business planning matters such as stock allocations, compensation structures and employment contracts.

Take The Mystery Out Of Succession Planning

A warning: Succession planning can be daunting. It is therefore important that stakeholders figure out how to ensure that the company remains profitable

Have you experienced success in a family business? Did I miss something? I’d love to hear your thoughts in the comment section below! In a December 2008 survey of nearly 600 business leaders and owners, 67% indicated that they did not have a written success plan. Of those who had a written plan in place, 55% said the plan was either out of date or in need of significant revision. There are many reasons for this, some of which you may recognize in your own organization. This article will explore some of those reasons, which I will refer to as myths, and consider some realities for business owners and leaders. In another similar article I write about succession planning for small businesses.

Fact – If you have 5 or more employees, even if they are all family members, the smart decision is to have a plan. You probably have life insurance, disability insurance, and even a will. Having these tools in place means you care about the people you love and want to take care of them if something happens to you. Succession planning is all about what will happen to your business and employees if something unexpected happens to you that makes you temporarily or permanently unable to perform your ownership or leadership duties.

Not having a plan puts the livelihoods of your employees and their families at unnecessary risk. You may address the financial side by having a large life insurance policy that will cover the bills and possibly provide some money for the surgery for a while. What is the leadership requirement for business continuity? You are putting an undue burden on your spouse if they are unwilling or unable to take on this responsibility.

A 20 Step Checklist For Succession Planning

I know of a situation where the owner of a 15-person software development company had a stroke. Fortunately, the stroke did not cause his death; However, it significantly affected his ability to think about complex situations, such as running, sustaining, or even growing his business. Unfortunately, this responsibility falls on his wife, who has no experience in these matters, even though she has some interest in business. As a result, she had to turn to a longtime family friend and business executive to advise her on actions. If a succession plan had been put in place, perhaps the woman’s heartbreak would not have occurred.

Reality – If this is your logic, you probably don’t put much value in budgets, marketing or sales plans, business plans or goals. The old saying, “If you don’t plan, you plan to fail” seems apt here. Succession planning isn’t just about the top job. A valuable succession plan considers all key positions in the organization, not just the CEO position.

Most leaders do not plan to let their key employees leave, become redundant, or be completely incompetent. Unfortunately, life happens and if we are not ready to act on what life throws our way, we are in a reactive, not proactive, mode. Our options are very limited when we are in reactive mode.

It’s not that you don’t have time; It’s true that you don’t want to make important, potentially difficult and uncomfortable decisions. See another myth #3.

How To Build Value By Starting Succession Planning Early [cheat Sheet]

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Truth – What’s really being said here is that you don’t like the obvious choices that are obvious. You may know in your heart that your younger sibling, child, or other second-in-command is not really ready to fulfill your role. Or maybe you know that you and your brother disagree about your cousin’s talent. You don’t have a viable alternative, or you don’t want to have one

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