By Prof. Enrique Soriano
I used the title, “Stop Building a Business. Start Building A Legacy!” when I was invited to deliver a virtual conference talk last month to an audience composed mostly of founders and second-generation successors operating in the ASEAN region. It was odd as I was in the U.S. and the conference was in Asia. But the gist of my talk was straightforward: that the time has come for founders to reflect on succession and appreciate that methodical planning is required, especially related to sharing and transferring power to their children. I also shared this powerful quote to amplify the urgency of succession planning:
My Grandfather walked 10 miles to work every day,
My father walked 5 miles,
I am driving a Cadillac,
My son is in a Mercedes.
He said my grandson will be in a Ferrari,
But he said my great-grandson will be walking again!
So I asked my son, well why is that?
And he said to me,
Tough times create strong men,
Strong men create easy times,
Easy times create weak men,
Weak men create tough times!
Founders must prepare for the inevitable: the critical need for them to step aside (at a pre-appointed time) as the owners of the family business and acknowledge that the biggest hurdle in this intergenerational transfer of power is about understanding the difference between knowing when to do it and knowing how to do it. To preserve wealth is to start succession early, as early as 10 years before you step aside.
With the economy slowly gaining momentum and the pandemic waning, founders must no longer delay this critical and inevitable handover event. So many issues are at stake.
Management and Ownership Succession to the most deserving
Should management and ownership continue in the family? Should the next business leader be chosen among the children? What if none of the offspring are qualified? Can a non-family member assume the role? In what capacity? As successor, mentor, or transition CEO? Should I start organizing a formal board? Who can sit in the Board? Is it necessary to have Independent directors? How do they function? Will my power be diluted when the Board is in place?
In a non-family business organization, the desirable mindset should primarily focus on the overarching values which are growth, innovation, and a shared vision. And they are reinforced based on two key corporate principles that shareholders and directors must legally embrace: duty of care and single-minded loyalty to the company.
For a family business to thrive, it is imperative for a founder that any disruption that will tend to impact growth must be taken out. It is also noteworthy that there is nothing in any business model that mandates succession as the exclusive domain of family members. In any governance and succession journey, every founder must realize that the greater good philosophy (what is best for the business) must and will always prevail. In truth, the most committed and deserving family or non-family member must be installed as the successor.
Unfortunately, for many family enterprises, the answers to the questions take a back seat. They are given less priority over factors like preserving the family name or culture, living up to the expectations of earlier generations, and providing business opportunities for future generations. The traditional mindset poses a challenge and a dilemma to every family-owning business that members are left to continue to wrestle with because succession, in whatever form, is inevitable, and only the wise, objective and forward-looking business leader can address family succession issues before they escalate into a full-blown conflict.
