Family Business Succession and Covid-19

By Prof. Enrique Soriano

What’s with procrastinating business owners in this time of the pandemic? In a recent survey made by ICON Executive Search covering emerging economies in Southeast Asia, a whopping 84% of founders and Gen 2 leaders have put off succession planning — to the detriment of family, employees, and the business itself.  Perhaps they do not realize that the two most significant risks to the future of any business is one that is often ignored: Ownership and Succession Risks. Ignoring ownership issues aggravated by leadership changes and together you have the perfect storm to take out the family business!

In one of my recent governance and succession talks with business owners, I was asked by a founder regarding succession and leadership, “I’m 69 years old, contemplating retirement for the past 5 years but worried for the future of my enterprise.

I started working at 13 and here I am still mulling retirement but still unsure with the second generation.  They don’t have the drive to go the extra mile, make sacrifices, unlike our generation where we would always instinctively think about survival because we were poor. My siblings and I never had formal schooling so we vowed that our children will have the best education money can buy. Sadly, in terms of work ethic and performance, they have fallen short. Does it necessarily have to be my children that will succeed me? Can you share other succession options?”

For every owner that wants to pass the business to the next generation, succession planning should be your top priority. When you own a family business, retirement isn’t just a matter of deciding not to report for work anymore. Beyond wealth preservation, the whole question of what will happen to the business becomes paramount long after you are gone. Nagging questions like who’s going to manage the business? How will ownership be transferred? Will there still be family harmony after I retire? How will the business fund my retirement? What will happen to my grandchildren?

In my work coaching family owned businesses in Asia, the longer you get to spend on succession planning, the smoother the transition process is likely to be. If you’re preparing to hand over the family business and you have reservations on your successor’s capability, you may want to first reflect on some possible options so transition can move forward with fewer bumps on the road. Hereunder are some key decisions covering a time frame of at least five years to get your succession plan moving:

1) Assessment of Current status with Governance Tools in Place

  • Collective definition of shared vision, mission, values
  • Facilitate next-generational communication via Constitution
  • Activation of family council based on agreed upon family governance rules

2) Clarifying and Articulating the Transition Process

A transition plan must be developed between the business leader and the next generation successors. The process should specify in unequivocal terms the transition date, performance expectations with well-defined Key Performance Indicators (KPI’s). It is also important to clarify the level of involvement of the retiring leader.

To provide exit mechanisms for the successor, an employment contract indicating the terms of the engagement must be highlighted. When there is a shared vision and values as well as clarity in the roles of active and non-active family members, there exists their willingness to discuss transition issues openly. This means that they can now appreciate and enjoy each other and move forward together.

3) Make an honest and realistic assessment of your gene (family) pool

You may want your first-born son to run the business, but does he have what it takes to run the business. Does he have the commitment or even the interest to do it?