Succession Is a Journey and Not An Event

By Prof. Enrique Soriano

Succession is one of the most important challenges family businesses are facing today. It is a once-in-a-lifetime event that covers three critical dimensions in the life of the family enterprise—Family Leadership, Management, and Ownership Transition. And every founder’s readiness to initiate and talk about it, plan the process, and formally pursue the succession journey are compelling reasons in determining whether the family business will make it to the next generation intact.

Without a doubt, the success or failure of the family enterprise rests on the shoulders of the founder as he navigates the extreme psychological and organizational pressures that are preventing him from passing the business down to his offspring. Adding to the burden of physical and mental stress are his fears of choosing the wrong successor. Equally troubling is the founder’s wrong mindset that if he relinquishes power, the business will suffer, a perspective far from the truth! Yet all these concerns reinforce his continuing dilemma of refusing to anoint one qualified child at the expense of another unqualified child. Despite the clock ticking, these complex forces will undoubtedly overwhelm the founder to choose the “do nothing” option.

With procrastination prevailing over succession, the chances of the business heading towards the path of self-destruction are high. I may sound like an alarmist, but I have seen conflicted families damaging businesses because their founders unwillingly procrastinated and refused to heed the call for governance and succession. In the end, every founder that did not initiate succession is complicit. To borrow a powerful Japanese proverb, “Vision without action is a daydream. Action without Vision is a nightmare.”

What Should Founders Do?

Overcoming their fears and still achieving a balance among the different interests of their role as a shareholder, business operator, and parent requires a process and a systems approach to succession planning. Every generational transition proposed needs careful planning and handholding. In my more than three decades of working for and working with family enterprises in Asia, I have recognized and respected every founder’s dream that their enterprise will be their legacy for future generations and that the business will pass to their children. But that desire remains elusive because many of them tend to hold back. It takes courage and action to wrestle with their psychological demons—a metaphor for fear, jealousy, pride, conceit, worry, and confusion.

To guide founders, I have outlined six critical questions that they should ask their children formally. That way, nobody can second guess anybody as the family moves forward with their succession journey:

• Do we have a shared purpose for why we are together?
• Are my children interested in taking over the business?
• Are my children capable of running the business?
• Are my children fully committed to growing the business?
• Will my children be united when I am no longer around?
• Will my children have a mindset of stewardship when they take over the business?

The answers of the children will give you a glimpse of their expectations, points of view, and how they look at the family business at present and in the future. It can be difficult for a parent to be objective in assessing a child’s interest in the company and their ability to run it. Therefore it is critically crucial for non-family intervention to be required either through the help of professional executives or family advisors who can provide mentorship to assess the children and their capabilities objectively. When succession is planned early and way ahead of the founder’s retirement (in the next 5 to 10 years), the sufficient time frame provides the business owner many opportunities to train and prepare the next generation of leaders.