Author: Darin C.A. Crouch
Imagine the situation whereby a person (the founder) starts a company and after the founder retires or worse yet when the founder suddenly kicks the bucket, there is nobody to take over.
The scenario sketched here above, is not uncommon. A founder may have off-spring, but the off-spring has no interest in being involved in the family-owned business (hereafter to be referred to as: “FOB”). Or the founder just never wanted to let go and no successor was ever groomed.
When I wrote my MBA thesis on “Succession Planning in Family Owned Businesses in Aruba”, I found out that succession planning was basically non-existent. Of the 25 family-owned businesses surveyed, only one family-owned business had thought about this subject.
The majority of the businesses in Aruba are FOBs. It is important to note in this respect that a FOB is not the same as a sole proprietorship. An estimated 80% of businesses across the globe are family-owned and FOBs are the largest employer in any country. The importance of FOBs for any economy is therefore unchallenged and alarm bells need to be sounded when a FOB does not have any kind of succession planned. Taking into consideration that 1 of the 25 FOBs surveyed in Aruba had a succession plan in place, there is need for concern before the shite hits the ceiling. What will happen to the employees if there is no succession planning in the FOB?
The common element in the FOBs in Aruba without any kind of succession planning in place is a lack of, or better said the absence of a Board of Directors.
Independent and professional people need to be appointed to the Board of Directors and the Board needs to, amongst others, establish an effective succession planning process.
Regular discussions of succession need to be held at board meetings. Not doing so could significantly limit the prospects of the FOB surviving into subsequent generations. The Board of Directors must also not be afraid to read the riot act to the founder and any family member involved in the business. The Board of Directors is there to ensure the continuation of the FOB and if that means entering into a (heated) discussion with the founder and others, then so be it. As such the Board of Directors should not consist of a bunch of brown noses.
The Board of Directors also needs to evaluate itself. It needs to be up front and ask themselves if they have the correct disciplines on the Board to get the job done. One of the skills most missed on Boards is that of HR-Talent Management.
The Board of Directors also needs to ensure that if a family member is to succeed the founder, that the family member in question has the ability to do so. The bottom line is that the successor does not necessarily need to be a family member: the best and most qualified candidate should be the successor.
To take it to a much wider perspective, no family member should be allowed to join the FOB if he or she does not have the correct qualification.
Furthermore, Boards also need to ensure that the FOB is not bled to death by having to support family members who cannot support themselves.
Overall, FOB Boards need to implement best practices and processes because good governance may lead to higher survival rates and smoother generational transitions.
The information in this article was also obtained from:
Generation to Generation: How To Save The Family Business by Boris Groysberg and Deborah Bell, published in the Harvard Business Review April 10th 2014
Avoid The Traps That Can Destroy Family Businesses by George Stalk, Jr and Henry Foley, published in the Harvard Business Review February 2012