AAB: help with planning the passing on of a family business

Family firms should focus on external challenges rather than internal conflicts over succession, where objective guidance is always available, writes Lyn Calder

“Open and honest debate around succession is crucial, as delaying to keep the peace can be detrimental” - Lyn Calder
“Open and honest debate around succession is crucial, as delaying to keep the peace can be detrimental” - Lyn Calder

Family businesses come in all sorts of guises, with varying internal challenges and external market forces. But one thing they all have in common is that eventually someone else will need to take the reins.

While it’s possible that the business could be sold, most know with certainty that succession will be passing the family firm to the next generation. So, with such inevitability, why is this a subject that often isn’t discussed until the 11th hour?

Not an easy discussion

With such inevitability, why is succession in family firms a subject that often isn’t discussed until the 11th hour?

Succession isn’t an easy discussion in non-family businesses either.Interpersonal dynamics and conflicting future aspirations are a feature of every business, and we see our clients in every sector regularly leaving transition conversations to the last minute.

What’s even harder to navigate for a family business is the matter of balancing the needs of all the family members with the needs of the business – and this can throw up significant challenges.

Let’s also not forget that the patriarch or matriarch may not feel ready to discuss relinquishing control, and in a family dynamic that’s a harder conversation to have than it is when the board and chief executive aren’t related.

There’s often an overwhelming feeling of responsibility for the legacy of the business – some of our clients at Anderson, Anderson & Brown (AAB) are fifth and sixth-generation concerns. Senior family members may not want to relinquish that responsibility, while others view it as a burden that they want to delay passing on to their children for as long as possible.

Being open and honest

Encouraging open and honest debate around succession is crucial, as delaying the discussion to keep the peace can be detrimental.

On-going constructive challenge protects business families from destructive conflict, especially in transition times.

Healthy debate is essential, but – understandably – some find it incredibly uncomfortable.

How an advisor can help

Family business advisors should encourage family members to share what they want, where they see that they can add value, and where they absolutely don’t want to be involved.

Early discussions are not just about the outgoing leader knowing when it’s time to go and having a period to prepare for this. The next generation also needs time, not least to build the skills the business requires them to have if they are to take the helm, and – if 2020 has shown us anything – what all businesses need going forward will be different from years gone by.

The family businesses team at AAB held a virtual roundtable event last month to discuss succession planning, and it’s clear that the next generation’s voices are being heard now more than ever – which is great to see.

That said, while some see it as a birth-right, it’s not necessarily the correct decision for the family business that the next generation succeeds the previous.

At AAB, we see this increasingly with clients – third-party senior management being brought in, either until the next generation has earned its stripes, or on a permanent basis, because the upcoming family doesn’t have the desire or the skillset.

Communication, communication, communication

Lastly, effective communication doesn’t just happen. There’s often a misconception that family businesses can conduct their business affairs in the same informal way they do their personal conversations.

Family businesses need to be focused on addressing external challenges rather than dealing with internal conflicts if they want to thrive, and this requires an effective governance structure.

What that means can vary between families but setting out rules of engagement in a family charter or constitution can be incredibly helpful.

A family constitution can cover such areas as family involvement in the board and their responsibilities, employment of family and non-family members, and succession management.

If these areas are considered, agreed upon, and integrated into a clear succession plan, then whoever takes the reins of the family business next will be well placed to continue to drive the firm forward on the road to future success.

Lyn Calder is managing partner, Edinburgh and head of family businesses at Anderson Anderson & Brown