Succession Planning for Family Owned Businesses
Succession planning for family owned businesses seemed to be ignored! Has contemporary HR addressed the succession planning challenges facing family owned businesses??
Contrary to popular belief, there is ample evidence that family businesses perform better than non-family businesses. In fact, ongoing research has shown that family businesses don’t only outperform non-family run competitors but they are also better managed.
Regardless of its size, the family business shares a number of significant qualities that bring special benefits to the community and economy in which they operate. For example, they tend to be more labour intensive and less capital intensive which results in a higher capacity for job creation with less employment volatility.
Other benefit of the family structure are:
· Innovation can be achieved at relatively lower costs because it uses internal sources of capital and reinvestment of profits
· Foster entrepreneurial instinct at the family level as they often act as incubators for new companies.
· Family businesses also take a longer-term view of their strategy and are less concerned with short-term shareholder value, which holds them in good stead during tough economic times.
But despite all of these positive characteristics, why do Ghanaian family owned businesses follow the founder to the grave, are there any lessons to be learnt?
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While the answer is not as easy as one would hope, succession planning for family businesses is a critical factor to the future success of them. The ultimate challenge to the founding family is its ability to ensure continuity of the business into the next generation, and at the same time retaining the collaborative harmonious family relationships.
Change, and in particular succession, is driven by the biological clock. In addition, factors such as leadership, management and departure or exit style of the founder, the size of the business, its structures and conflict management procedures all impact on the succession process.
Succession planning for family owned businesses is a journey that must be planned. It must address both the transfer of business ownership and management continuity. This is hardly the case in Ghana, we see the transfer of ownership without any conscious effort at ensuring the continuity of the business.
Some of the key characteristics of the family businesses structure that need to be modified to allow for a smooth and successful generational transition include:
· The highly centralized decision-making system of family owned business must be replaced by a culture supported by formal policies and procedures; there must be an accepted way of doing things.
· The entity must diversify its dependence on one or two key individuals for its survival and growth. In most cases, founders stuff their kith and kin in the board so much that they dilute the board’s effectiveness , resulting in weak infrastructure that directly affects decision making
· Succession planning must be embedded into the day to day running of the business and must not be relegated to the tail end.
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· Structural defects within the family (divorce, polygamy and unwarranted familial pressures) usually impact the operations of the second generation. It is the duty of the founder to address these defects before passing on the reins else it endanger the continuity of the business.
· Our inheritance system makes it even more difficult for an entrepreneur to choose a heir to carry the business forward. Under the paternal system of inheritance, the business is handed over to the eldest child or the child of the eldest wife. Under the maternal system; it is the founder’s sister’s eldest child. These may not always be the best choices, as the individual may not have the ability, education or skills to successfully lead the business into its next stage.
· A final dimension is the influence from Son-in-laws and daughter-in-laws, this group have a strong influence on the chosen successor but may not hold the same values and morals that have served the family well.
A famous saying about family owned business is that “Father, founder of the company, son rich, and grandson poor). The founder works and builds a business, the son takes it over and is poorly prepared to manage and make it grow but enjoys the wealth, and the grandson inherits a dead business and empty bank account.
The succession planning for family owned businesses is a process that should ideally be seriously underway by the time the business leader is in his or her late forties or early fifties, and the children in their mid to late twenties. As you get older, your influence will naturally wane.
Yes, it takes time and resources to complete this process but it could mean the difference between a thriving business that continues to bless you and future generation, or a sad statistical footnote. It’s important to remember that it is never too early to start the succession planning for family owned businesses.