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Many businesses become so dependent on
one dominant personality that people question how the business
will fare when the time comes for them to retire.
What will Microsoft be without Bill
Gates? Would News Corporation be a good investment on the
day Rupert Murdoch retires? And will Virgin Group remain intact
if Richard Branson falls out of a balloon?
One of the most important tasks facing
the chief executive of any company is arranging for their
own replacement. This is difficult in a major company that
can offer the terms needed to attract the world's best executive
talent. But it is more problematical in a family business.
Imagine the position. After years spent
building a successful family business, it is time for the
founder to retire and s/he has to decide who should take over.
There may be people from the next generation
of family members that have worked in the business all their
live there may be others that have gained outside business
experience. But are any of them up to the job - would th founder
and the family gain more by selling out now rather than risking
the future on an untried successor?
Less than 25 per cent of family businesses
in Europe survive to the second generation; less than 10 per
cent to the third. And the main reason for this has been cited
as being the inability of businesses to resolve family succession
issues.
Earlier in this series of articles we
discussed the difficulties that exist in many family businesses
in relationships especially between fathers and sons. While
ideally decisions on succession should be taken on rational
business grounds (what's best for the business is ultimately
probably best for the family too) in most cases emotions and
psychology take over.
As we have frequently seen, founders
can be very reluctant to let go and so put off thinking about
the problem until they are forced into it, perhaps by diminishing
health.
We believe that succession is a topic
to be faced up to early. Ideally it should be openly discussed
at a family forum (see our earlier article) where the key
issues can be aired and later revisited as economic and family
circumstances change. Areas to look at include: -
- the family or non-family members
available to take over the business;
- how shares should be handed
on to future generations (should the next chief executive
have majority control?
- arrangements for funding the
founder's retirement (is there an adequate pension in place,
or will s/he be looking to extract further cash from the
business?);
- would the maximum benefit be
gained by selling out;
- the tax consequences of the
alternatives.
Succession should not be seen as an event,
rather a process to be carefully managed over a long period.
There may be problems from unexpected quarters along the way
(it is not unknown for a founder's wife to be reluctant to
have him at home all the time - and she may see her own status
as diminished by his retirement). But the sooner work starts
on planning the transition, the better. We are happy to discuss
this series and the issues arising - we have provided support
for many businesses in handling this process.
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