Increasingly, family business owners have reported difficulties in managing expectations and find that succession planning can be a difficult and even taboo conversation.
The most recent, and perhaps surprising, example of evolving, modern approaches to succession planning is the approach taken by incumbent Castle Howard owner Nicholas Howard.
Rather than following the traditional primogeniture method of passing his estate to his eldest son (who has been a director of the estate since 2012), he has decided to hold a formal “interview” process with various family members to determine the successor estate owner.
This breaks with hundreds of years’ worth of tradition. Mr Howard’s reasoning focuses on creating “a level playing field” and assures that “there is no plot or conspiracy” afoot.
Of course, every family is different, and there are no hard and fast rules that can guarantee passing a business on will go smoothly without accusations of ‘plots’, as Mr Howard puts it, by disgruntled potential beneficiaries. However, there are a few steps that family business owners and entrepreneurs can take to try and mitigate fallout.
Be clear on the future direction of the business
Whether you envisage a long retirement, would like to see the business expand and change direction, or would like to keep the same core values the business has always had, being as clear as possible as early as possible is essential.
Managing everyone’s expectations at the earliest opportunity helps to minimise the risk of being blindsided by big decisions or new ways of working, and can help keep the business on track.
This is also a good time to deeply consider who is going to make for a reliable custodian, whether they will follow through with your vision for the business, and if they are capable of handling this delicate situation carefully. While primogeniture has been criticised widely, there can be a benefit in the family having certainty on who will inherit from day one.
Taking a more flexible approach can mean the best person is chosen based on merit, but it can be potentially destabilising and can have a great impact on the life decisions that the family make during that period when no heir has been identified.
Implement sturdy plans, far in advance
As with many things, failing to plan is planning to fail. Once considerations regarding the future landscape have been made, set your house in order and formalise future business plans. Of course, succession plans can change – but having them laid out clearly can offer immense peace of mind and certainty for all involved.
This also allows everyone within the business to familiarise themselves with the plan, communicate concerns or potential risks, and be ready for the change when it happens.
Managing expectations from the offset can help guard against potential disputes further down the line. Families will use Charters or Constitutions and other legal and non-legal tools to set out the ground ules of the succession plan clearly.
In making a succession plan it is important to remember that the business will need to sustain both the retiring generation and the future generations, so this is an investment for years to come. Some families enforce a retirement date or implement a third party appraisal system for power holders, so they can determine when to step down.
It must be remembered that there is a great difference between a management role and taking actual ownership. The succession strategy must create a timeline that effectively deals with the transition of both, otherwise the next generation may find they are running the business for the benefit of their elders, who remain the shareholders.
Handling the transition effectively
Although tempting to remain in the business you’ve created for as long as possible to show stability and continuity, such a strategy can leave the younger generation feeling disillusioned and detached, even deciding to start their own venture instead rather than have to wait for the reigns to be handed over. Although allowing younger generations to gain valuable business experience of their own is important, so is keeping them invested and involved. This could also maximise the chance of success in the future as they will have a deep understanding of the business’ workings and values and can avoid dogmatism.
Although wider economic situations may cause ripples in a business’ stability, and not every situation can be mitigated internally, embracing generational differences and avoiding treating succession as taboo can reap long-term rewards for both your family and your family business. Early conversations and sturdy planning can give a confidence boost to key stakeholders and beneficiaries that the business is in the best possible situation, in the hope that it thrives for generations to come.
