Family businesses can often struggle in a globally competitive market. The Harvard Business Review published in its January 2012 issue that approximately 70 per cent of American family-owned businesses fail before the second generation can even get a chance to lead. However, a smart solution is to build a strong succession plan so that the business can be prosperous for future generations too. “Smooth succession is an oxymoron… Succession in a family business is probably the most complex management challenge anybody faces” said Peter Davis, director of the division of family business studies at Wharton School of Business. Quoted in the very first volume of the Family Business Review from winter 1988, his words still ring true today.
Even in contemporary times, succession planning is rarely implemented. Indeed, PricewaterhouseCoopers’ 2014 global family business survey, titled ‘Up close and professional: the family factor’, found that only 16 per cent had a robust succession plan.
Often succession plans are not organised with strategy or finesse. This is particularly problematic for family businesses, as they may need to manage disputes between siblings or face problems when children have not been adequately groomed for leading the business. Quality training and skill building is critical for helping the business stay within the family.
Importance of legal consultation
Wendy C. Handler wrote in an article for the Family Business Review in 1994 that “researchers in the field of family business agree that succession is the most important issue that most family firms face” because it requires passing down the baton of the business to the next generation. The safest way to procure a smooth transition is to solicit legal advice.
It is important to be objective, rational and practical with succession planning so that the best candidate for the job is selected and trained accordingly. Such objectivity can understandably be difficult when dealing with family members, and so drafting a succession plan with expert lawyers provides customisation for the needs of a family business.