In the realm of family businesses, where the stakes are as high as in large corporations, a well-thought-out succession plan becomes paramount. It serves as the linchpin for a seamless transition of leadership and the safeguarding of your hard-earned legacy, especially when the ideal candidate for inheritance may not be readily available.
When Jonathan, aged 54, began contemplating retirement from his graphic design agency, his first thought was to pass the torch to his 25-year-old daughter Emily. However, to his surprise, she declined the offer. Jonathan had poured his heart and soul into building his agency, transforming it into a global powerhouse with five offices worldwide. The sacrifices he made along the way, trading family time for business success, were all justified by the beautiful memories they had created and the prosperity he had achieved. With his daughter being a talented, aspiring artist and writer, he assumed she would be the perfect candidate to carry on his legacy, having witnessed firsthand the rewards of his hard work. But as it turned out, he was mistaken.
The Reality of Family Business Succession
In a recent study focused on family businesses, a startling statistic surfaced: over two-thirds of these enterprises lack a structured succession plan.
Parents often assume their children will naturally gravitate towards continuing the family business, only to be surprised when they show no interest. However, a multi-generational company doesn’t automatically necessitate an heir taking the reins. It often involves the internal development of successor leaders. Take Nestle’s CEO, Paul Bulcke, for example. With 30 years of experience in various leadership positions within the company, Bulcke was well-versed in its strategic direction, culture, and current business objectives. While alternative methods exist to secure your heirs’ benefit from your business success, such as special stock classes within a foundation or trusts, entrusting an adult child without proper leadership development could potentially harm the company’s future value.
The Critical Keys To A Succession Plan.
After studying several corporations’ efforts to establish leadership succession, we have discovered the importance of taking proactive steps to craft a succession plan to ensure a seamless transfer of leadership. This plan should encompass the following critical elements, including protocol, scope of work, and even leadership development training for the incoming Chief.
Clear Protocol
The plan should outline a clear and transparent process for selecting the successor, considering factors such as qualifications, experience, and suitability for the role. It should also establish guidelines for assessing potential candidates and determining the criteria for their evaluation. Bacardi Limited, a global spirits company, is an example of a family business that prioritizes clear protocols in its succession plan. The Bacardi family established a governance board comprising both family and non-family members to oversee the succession process. This board ensures that family members are selected based on merit and qualifications, rather than solely on family ties. By establishing such protocols, Bacardi Limited ensures that the best-suited family members lead the company, promoting long-term success.
Scope of Work
The plan should define the responsibilities and duties of the successor, ensuring they have a comprehensive understanding of their role. This includes specifying the extent of decision-making authority, areas of focus, and potential changes to the organizational structure. Danone, a multinational food-products corporation, focuses on creating a culture of continuous learning and development. They have established programs such as the Danone Academy, which provides employees with opportunities for training, coaching, and mentoring. This ensures that potential successors have access to resources and support to expand their knowledge and skills, preparing them for leadership roles within the company.
Leadership Development
Providing leadership development opportunities for the designated successor is crucial for their smooth transition into the role. The plan should include provisions for training, mentorship programs, and exposure to various aspects of the business to develop the necessary skills and knowledge. The Estée Lauder Companies is a global leader in the beauty industry, with a portfolio of renowned brands. In 2009, the company experienced a seamless leadership transition when William P. Lauder, the grandson of the company’s founder, took over as Executive Chairman from his father, Leonard Lauder. This transition exemplified the successful passing of the torch from one generation to the next. The Lauder family had implemented a thorough succession plan, which involved identifying and grooming potential successors from within the family and the company. The smooth transition ensured continuity in leadership and maintained the core values and vision of the company.
Timelines and Milestones
A well-defined timeline with specific milestones helps ensure a structured and efficient succession process. This includes setting target dates for key stages, such as identifying potential successors, conducting assessments, and finalizing the transition. The Walton family’s succession plan for the retail giant Walmart is a well-known example. Sam Walton founded the company in 1962, and his children and grandchildren have successfully taken over leadership.
The family had a clear timeline and milestones in their plan. For instance, Sam Walton’s eldest son, S. Robson Walton, took over as chairman in 1992, and his son-in-law, Greg Penner, became chairman in 2015. This succession plan ensured a smooth transition and continuity of the family’s control over the business.
Communication Strategy
Effective communication is vital during the succession process to ensure transparency and clarity. The plan should outline how and when key stakeholders, including family members, employees, and external partners, will be informed about the succession plan, addressing any concerns or questions they may have. One notable example of a family business that has achieved successful multi-generational succession is the Mars family and their confectionery empire. The Mars company was founded by Franklin C. Mars in 1911, and it has been passed down through four generations of the family. Today, the Mars family continues to own and operate the business, which is known for popular brands like Mars, Snickers, M&M’s, and Twix. Their ability to maintain family control and successfully transition leadership from one generation to the next has been a testament to their commitment to long-term planning, strategic decision-making, and a strong family governance structure.
Contingency Plans
It is essential to anticipate unexpected events or circumstances that may impact the succession plan. The plan should include contingency measures, such as alternative candidates or interim leadership arrangements, to address any unforeseen challenges. Nike, a renowned fitness and athletic apparel company, places great importance on succession planning and contingency measures. They have a comprehensive succession management framework that includes identifying high-potential employees and developing their skills through mentorship and leadership programs. In case a chosen successor doesn’t meet expectations or faces unexpected circumstances, Nike has mechanisms in place to reassess and select alternative candidates who are ready to step into leadership roles.
By incorporating these critical elements into the written plan for succession, family businesses can mitigate risks, foster a smooth transition, and ensure the long-term success and sustainability of the organization.