Being prepared for the unexpected in corporate succession
Succession management is an important and highly personal undertaking, especially for family firms. At the same time, the decision can be influenced by many factors such as whether children are even interested in succeeding the previous generation in the first place. As such, corporate succession should be planned with a long-term perspective.
Preparing for corporate succession
Corporate succession is accompanied by various open-ended questions such as when the company should be handed over and who should take over management and ownership. It is advisable to address these questions and weigh different options for succession at an early stage, at least five to ten years before the planned handover, since the desired succession option cannot always be implemented and unforeseen events can affect the handover.
Factors that can influence corporate succession
Timely planning increases flexibility. Aspects such as the timing of the handover can be influenced by changes and uncertainties in the regulatory, economic, or personal environment. For example, a survey conducted as part of the Credit Suisse Succession Study found that 6% of the entrepreneurs surveyed brought their company handover forward due to pandemic-related changes in the economic environment, while another 7% postponed theirs.
The trend observed with regard to the effect of competitive pressure on the timing of the company handover is somewhat clearer: While 13% of respondents brought their company handover forward due to pressure from competitors, only 2% postponed it for this reason. A similar picture also emerges with regard to pressure from business partners and entrepreneurs' own families. Health problems can also necessitate an acceleration of the succession process.
Family firms prioritize succession solutions within the family
Significant differences can be observed between family and non-family companies in terms of the succession options pursued. According to the survey, most non-family entrepreneurs aim to sell the company. Sale to another company is often considered before sale to (executive) employees.
The situation is different for family firms, which, in many cases prefer a solution within the family for obvious reasons. Not least among these is the fact that the company in question is often a family tradition that has been built up over generations. At the same time, however, experience shows that many children of entrepreneurs have no interest in joining their parents' companies: According to the Global University Entrepreneurial Spirit Students' Survey, only 20% can see themselves following in their parents' footsteps.
The challenge of succession solutions for family firms
In cases of succession within a family, it is often necessary to address the question of which descendants should take over management and ownership. The 2016 Succession Study showed that the majority wanted to hand over management to the descendants with the strongest business skills while dividing ownership equally among all the descendants. This configuration also poses the risk of potential conflicts, however, in cases where several children dedicate themselves to management but all of the descendants benefit equally. One option that can allay this conflict is to separate company and non-company assets. In this case, the descendants who are not involved in operations can only be allocated non-company assets.
Corporate succession can also be challenging for handovers within families from a legal perspective. If the testator has not regulated their estate, the company may find itself facing financial difficulties since the compulsory entitlements of descendants and spouses are generally settled immediately.
Securing corporate succession with company exchanges
Before choosing a succession solution, it is worthwhile considering other options like company exchanges as well. These platforms link potential sellers of companies with potential buyers – and vice versa. Such platforms are relatively convenient and offer participating companies the opportunity to benefit from the operator's customer network and expertise. At the same time, this variant increases flexibility in the search for a succession solution while also increasing the visibility of the company.
Despite these advantages, an analysis according to company size shows that company exchanges appear to be less attractive, especially for smaller companies. This reflects the fact that brokerage fees can weigh more heavily on small companies and that the owners of small companies often have specific ideas as to whom they are interested in selling the company to.