Corporate succession in practice: Challenges and insights

Planning the corporate succession for a company is a central strategic task for entrepreneurs. The survey results of the current succession study by Credit Suisse show how complex the succession process is. It may take several years between initial contact and the actual handover of the company. Patience is required from all those involved.

Corporate governance – a labor of love

The succession process is one of the most important milestones in the life of an entrepreneur, and sometimes they even go through it twice – once to take over the company, and once to hand it over to someone else.

Many entrepreneurs find it difficult to say goodbye to their own company, as their company often represents the realization of their life's work. This is why the transfer of companies is usually delayed until the last possible moment. In about 80% of company successions carried out during the last ten years, the handover was due to health or age. In more than half of the handovers, a solution was found that keeps things in the family (FBO).

2022 succession study: One process, two perspectives

In this year's succession study, the succession experts of Credit Suisse and the Center for Family Business of the University of St. Gallen (CFB-HSG) examined the succession process closely. The focus was on the sequential order of the individual handover steps during the succession process.

16/11/2022

Being prepared for unforeseen events in corporate succession

In the case of family businesses, the supposed succession often takes place years before the actual handover. At the same time, however, experience shows that many children of entrepreneurs do not want to join their parents' company at all. What to do? In general, it is worth investigating various succession options at an early stage. One option is to search for a successor via a company exchange. While the entrepreneurs surveyed are rather skeptical about company exchanges, such platforms also offer advantages: For example, going through a company exchange increases the visibility of the company, since you come into contact with a larger number of potential buyers.

Unforeseen events can also affect the resolution or timing of the handover. For example, the current changes in the economic environment following the coronavirus pandemic have led 6% of entrepreneurs to push forward their own company handover. A blow of fate or pressure from the competition or one's own family can also unexpectedly speed up the handover of the company. Those who set the course for a smooth handover at an early stage and who deal with the company succession years before the actual handover are at an advantage.

The succession process is complex

Each succession process is as unique and individual as the people behind it. Nevertheless, the survey results provide some very valuable clues regarding the individual handover steps. In general, there are two types of succession sequences:

  • Baton change 
    In the case of a baton change, the management and ownership are handed over at the same time. According to the survey, an average of around six years elapses between the company's start of succession and the final handover of the two elements.
  • Gradual handover
    The gradual handover process involves management and ownership passing to the succession in various steps – usually, management first followed by ownership, in gradual steps. For the corporate successions carried out during the last ten years, the entire process up to the acquisition of majority ownership took on average about 14 years and often even much longer. It is to be assumed that in these cases the majority ownership was transferred to the successor only with the inheritance, or that the transferor held company shares for financing purposes until the end of their life.

Letting go is an emotional challenge

Once the succession process is complete, a new era begins at the head of the company. But a completed handover often does not mean an immediate withdrawal of the predecessor. According to the survey, almost half of predecessors are still on site for at least one hour a week two years after the management was handed over.

The survey shows the advantages and disadvantages of such a situation. For example, more than half of successors surveyed said they could count on the advice and wisdom of their predecessor when faced with having to make difficult decisions. At the same time, the presence of the predecessor can prevent the next generation from developing their entrepreneurial independence. In addition, the unwanted influence carries additional potential for conflict. According to the survey, 27% of those surveyed experienced moments of conflict when they took over the company.

 

 

Findings and recommendations for the period during the handover

Which aspects promote a successful handover process? On the basis of the results of this year's survey and the resulting findings, Credit Suisse and the Center for Family Business of the University of St. Gallen (CFB-HSG) have developed practical recommendations for entrepreneurs.

  • Organize the different responsibilities by clearly dividing tasks: Around 75% of entrepreneurs surveyed consider this aspect to be very important for a successful handover process.
  • A timely and thorough preparation of the succession increases the scope for action and can help you avoid any subsequent surprises. You should plan for a time horizon of around five to ten years in order to complete the entire process.
  • Don't be afraid to seek professional expertise. Around three-quarters of entrepreneurs surveyed see a moderate to very high need for assistance with tax issues, for example. External consultants can help to address the complexity of the succession topic.
  • As the entity taking over, consider whether the benefit you can derive from your predecessor's experience outweighs the cost of unwanted influence along with the associated potential for conflict.

Is your company facing succession or would you like to learn more about the individual steps for corporate succession?