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Passing the Reins: Planning for Continuity in Corporate Succession
Successfully passing the reins of a family enterprise to the next generation of leaders depends on a carefully crafted succession plan that considers the needs and desires of multiple stakeholders. Getting there is a multi-step, and often non-linear, process.
Key takeaways
- Succession planning is a complex process that can take between five and 10 years to complete. Entrepreneurs should begin the process at least 10 years before they plan to exit the company.
- It’s important to establish a formal channel of communication between family members and advisors to ensure everyone’s needs and interests are heard and considered in the final plan.
- Business continuity is the top concern for most stakeholders. Families who foster a shared sense of purpose and vision for the future are better equipped for a smooth transition.
A senior wealth planner at Credit Suisse explains that business continuity is top of mind for stakeholders. Who will take the reins when the power holder steps down? Are the right people and processes in place to help the Next Gen leaders succeed? And, perhaps most importantly, will the succession plan balance the interests, needs, and desires of the outgoing leader with those of the next generation of leadership to carry the business forward?
It can take five to 10 years to explore options, develop solutions, and craft a formal plan for succession.
Unity in purpose
Family enterprises are unique in their rich histories, long-standing relationships, and complex dynamics. Achieving unity between the current power holder, Next Gen successor, and extended family requires patience, time, and communication. Learning to accept differing goals and priorities is essential in navigating the transition process.
“Succession in family businesses often raises questions of fairness and equality,” says the specialist at Credit Suisse. Fair treatment may not always correspond to equal distribution; different family members may take on different roles and responsibilities that better align with their interests and priorities once the current leader departs, he says.
The wealth planner points out that families that foster a shared sense of purpose for the future are better prepared to handle the complexities of succession planning. Getting there starts with a structured approach that ensures everyone feels heard, valued, and understood.
5 steps to succession planning
1. Initiate the planning process
Succession planning involves multiple stakeholders and close collaboration with a variety of internal and external experts and advisors. For this reason, family leaders should begin the process at least 10 years before they plan to exit the company.
Key considerations:
- Which family members should be involved in the process?
- What external experts will need to be brought in?
2. Evaluate the current situation
Once the enterprise’s financial and organizational situation is analyzed and documented, the discussion moves to the personal needs and interests of the current leader, family members, and Next Gen successors. According to the specialist at Credit Suisse, balancing these – often competing – interests depends on acknowledging and respecting potential differences in vision and purpose.
Once the transition team has a complete picture, they can begin to develop various courses of action that can be mixed, matched, and combined to form a cohesive plan.
Key considerations:
- Are Next-Gen leaders willing to assume control? Are plans in place to help them succeed?
- What formal communication channels and processes for dispute resolution are in place so that all stakeholders can be heard and offer feedback?
3. Evaluate options
Because there are usually multiple courses of action to achieve the goals established during the analysis phase, key stakeholders should consider the pros and cons of each option before a plan is formally developed. Ideally, next-gen family members have been involved in strategic issues throughout the process, but if not, it’s important to involve them during the evaluation phase. Their interests, goals, and ideas will determine the ultimate success of any succession plan.
Key considerations:
- Have all family members been involved in decision-making?
- Does the plan ensure business continuity?
4. Prepare for transition
Once the succession plan is selected, the long-term work of preparing its implementation begins. A strategy should be developed to enable the successor to take control of the enterprise. During this time, the transition team lays the legal and financial groundwork to implement the transition plan and establishes a communication plan to relay information to employees, shareholders, customers, and the general public. The formal transition to new leadership begins.
Key considerations:
- Is the executive management team equipped to function after succession?
- Are there any personnel conflicts that need to be resolved before the transition?
5. Hand over control
In this final step, the outgoing leader hands over control of the company to the successor and officially exits the company.
Key considerations:
- How will the outgoing leader and successor work together during the transition period?
- How will conflicts be resolved?
Expect an evolving journey
Succession plans need to be flexible as your family’s needs change. You and your team of advisors should review your plans on a regular basis to make sure it aligns with your family’s evolving visions and goals. With regular fine-tuning and review, your succession plan can protect and grow your enterprise and pave the way for a smooth transition to your successors.
You may also like: Our 2023 Family 1000 report discusses the role of innovation in growing and sustaining wealth in family-run enterprises. See how today’s leaders are balancing risk and innovation in pursuit of growth and long-term sustainability.
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