Family-owned businesses are known for many things, but spanning generations isn’t necessarily one of them. In fact, a recently released EY Global report noted that the majority of family businesses fail to stay operational for more than one or two generations before closing their doors for good, although there are some that beat the odds.
The report, titled “Staying power: how do family businesses create lasting success?,” was put together by EY in partnership with Kennesaw State University. Its findings were based on survey data gathered from 2,400 of the largest family-owned businesses in the world, which offered insight into how family enterprises can not only stay solvent beyond the first- or second-generation mark, but gather steam and ultimately reach new levels of prosperity. As it passes from generation to generation, a truly successful family business will flourish rather than weaken.
Survey participants identified the following elements as factors in their success:
- Establishing a board of directors (90 percent)
- Holding regular business meetings (90 percent)
- Having clear succession plans in place (87 percent)
- Being prepared to increase cybersecurity spending (83 percent)
- Participating in philanthropy (81 percent)
- Branding themselves as a family business in their marketing collateral (76 percent)
Succession is an important component of a family business’ longevity.”
The question of succession
Succession is arguably the most important issue affecting the longevity of a family business – or, indeed, any other type of company. After all, even the most robust enterprise will likely flounder if its leadership is in question. Clearly, succession planning is important – but who’s responsible for setting up a strategy? Survey respondents most commonly assigned this task to the board of directors, followed by company owners, the family council and the CEO.
Once businesses determine who is in charge of succession planning, they can tackle the next question, which is decidedly more complicated – namely, how will they go about putting together the plan itself?
The first step
The first step is simple: Don’t leave things until the last minute. It’s inevitable that one day, the company will be in the market for a new leader, but succession planning should start far before that. As the months and years pass, situations may change: Children may express interest in taking over the business (or not), illnesses may strike, marriages and divorces may change the shape of the family and so on. A hallmark of a plan prepared well in advance is that it gets updated a few times before being put to use.
Agreeing on specifics
Succession plans are about more than who takes over – they also lay out a guide for what corporate values will endure, how the family will split ownership, what goals the company will strive to meet, etc. These decisions can be made by collating family members’ individual and collective aspirations.
Families must get together and hash out their plans for the business so everyone is on the same page when it comes to succession.Preparing for the transition
Sometimes, companies reach the point when they need to put their succession plans to use and realize they forgot to map out the path from A to B. A leadership shift can’t be accomplished overnight, so a succession plan shouldn’t assume it will. Benchmarking can be helpful here, as it provides a structure for making the transition over time.
Groom the successor
The successor’s first experience carrying out the tasks associated with running the company shouldn’t be when he or she officially takes the reins. For months – or even years – before, this individual should shadow his or her predecessor, learning the ropes from the expert rather than muddling through alone. Some family-run businesses will elect to bring someone in as president or COO to bridge the transition from the CEO to the next-generation family member.
About Caldwell Partners
Caldwell Partners is a leading international provider of executive search and has been for more than 40 years. As one of the world’s most trusted advisors in executive search, the firm has a sterling reputation built on successful searches for boards, chief and senior executives, and selected functional experts. With offices and partners across North America, Latin America and in London, the firm takes pride in delivering an unmatched level of service and expertise to its clients.
