It’s Never Too Soon to Start Succession Planning
Summary: Family Business Advisors, Aline Porto and Ana Silvia Resende, shared their thoughts on the family business succession by comparing it with sports team: being prepared for the future doesn’t happen overnight. It’s important that family business owners have a clear picture of what they want to pass along generations, including the key elements of the culture they want to endure. That won’t happen overnight. It’s crucial to practice and work together within the family to run the business and prepare the next generation to take over leadership when it’s time. As Resende and Porto suggest: “If you want your legacy to outlive you, you need to prepare the next generation as well and make them feel they are part of the business.”
Like any good sports team, being prepared for future games doesn’t happen overnight. It’s never too soon to start laying the foundation for a successful family business transition.
Recently, a friend called to share the devastating news that her uncle, a leader in their family business, had passed away from COVID-19. He had a larger-than-life persona and the family was obviously shaken. But there was some small comfort for her at this difficult time: “At least his succession plan was clear and everything is arranged”, she told us. It’s normal for anyone to be so mired in grief in the aftermath of a death of a loved one that thoughts of making decisions to keep the family business running smoothly might take a back seat. But in our experience, one of the best ways to endure a difficult family transition, such as an unexpected (or even expected) death in the family, is to plan for it long before it’s a reality.
But her follow-up question demonstrated that she understood the importance of planning well in advance for transitions in family business: “When shall I start planning my own succession?”
The answer is now. Like any good sports team, being prepared for future matches never happens overnight. It’s never too soon to start laying the foundation for a successful family business transition. Here we offer some guidance on starting to prepare your family for an eventual generational transition.
The clock is ticking
The first moment you think: “I want this to pass on to my kids”, that’s the time to start planning. Transition and succession are a process, not an event. So, use time in your favor. The sooner you start thinking about it and making intentional choices, the easier the eventual transition will be. And perhaps more importantly, the higher chances of that transition happening on terms that are aligned with your own wishes for both the business and your family.
The first moment you think: “I want this to pass on to my kids”, that’s the time to start. Transition and succession are a process, not an event.
Top business families make a point to have their preteen and teenage children learn about the people who work in their business, what these people produce, and how they do it. Regina Helena Scripilliti Velloso, a fourth-generation owner of Brazil’s Votorantim Group, shared how powerfully her grandfather instilled in her the foundation of where the business started with our colleagues Josh Baron and Rob Lachenauer in their book the Harvard Business Review Guide to Family Business. The family-owned company now has operations in more than twenty countries in cement, mining, metallurgy, steelworks, banking, orange juice concentrate, and generation of electric power. But like all great family businesses, Votorantim started with a smaller passion.
When I was a little girl, my grandfather would take us to visit the sugar cane mills. And I really didn’t like the taste of sugar cane juice. It’s terrible. But I didn’t have the courage to tell my grand- father that I hated this juice, because of what it meant to him. He’d say, “When you smell the sugar cane syrup, you are not going to forget it. This is going to enter your blood and your heart.” I didn’t understand it at the time, but as an adult, I understood he was sharing with me the passion for the business and the legacy of where we came from.”
“When you smell the sugar cane syrup, you are not going to forget it. This is going to enter your blood and your heart.” I didn’t understand it at the time, but as an adult, I understood he was sharing with me the passion for the business and the legacy of where we came from.”
Youthful exposures—such as working in the company gift shop, stocking shelves, helping pick a logo and walking your orchards—create a lasting appreciation for the craft of a family business. It’s an early and important lesson that it’s not all about money. Business can be fascinating, even beautiful. Many owners provide their children with a deep appreciation of their family business in age-appropriate ways such as visits to the factory floor and internships.
We are not suggesting you should start training your 7-year-old daughter to be a CEO. We are suggesting you should educate yourself on how to think about succession in your family business. As our friend’s situation makes clear, succession in a family business is not all about who is going to be the next CEO. It’s about thinking about all of the roles that family members play in that business, including leading a family council. It’s about making decisions about your business design and governance, preparing the business, and preparing yourself to make the right choices. The more time you have to make a succession plan, the better.
Great teams need practice, practice, practice
Running a family business is a team sport. You don’t see any major league team, no matter how good its players are, just showing up to a match. They train together for hours and hours, so they know how to operate as a unit while respecting and fostering individual strengths, too. Don’t you want your kids or nephews to be good teammates? You need to help them learn how to work together.
And it’s not about only learning how to make group decisions, it is about doing things together, building something, and getting that amazing feeling of achievement. We suggest even simple activities among next-generation family members can help build their relationships and trust, both of which will be essential to a successful transition. These activities can range from a puzzle, building a toy house, planning and arranging a family trip, or even launching a product or buying a business. Not only will they learn how to work together, they will hopefully build a base of trust. That’s not to say this will automatically happen, you may need to help, guide and sometimes interfere through the process. Just like a good coach would for his team. Explain why they need to be able to work together. Something as simple as: “As the next generation owners, siblings, cousins, and family members from different branches of the family will need to be able to make good decisions together” can be a good start.. The point is that you are actively preparing them for working through decisions together long before it’s a necessity.
And it’s not about only learning how to make group decisions, it is about doing things together, building something, and getting that amazing feeling of achievement.
You may be tempted to divide up responsibilities – for example allowing your successors to run different business units or departments – as a simple way to accommodate individual demands while giving them room to operate. But that doesn’t provide them with the opportunity to learn how to work as partners without you being around. You can, however, intentionally create situations or projects that require those different departments to work together. We worked with a 65-year-old CEO who inherited the business from his father. When they were younger, they made the decision to give each sibling a different area of responsibility and they never needed to work together. Eventually, they decided to split the business with each becoming head of one of the three spin-offs. One day, visibly sad, he shared his regret: “Do you know when I would be able to partner with my siblings in one business? Probably never. We worked 40 years in the business and our father never taught us how to work together.” Working through conflict can be an important learning opportunity for your next generation.
Doing Drills Builds Skills
It can be difficult to focus on the next generation when you’re consumed with building the business now. Sometimes we hear “It’s my business, I envisioned it, I built it. It’s going to be the way I want it to be”. But if you want your legacy to outlive you, you need to prepare the next generation as well and make them feel they are part of the business. We are not saying you should hand over control too early or give up on your decision rights, but start a conversation with the next generation. Hearing what your successor thinks and learning what they brings to the table will not only give you insight into them as future owners and leaders but also provide you with an amazing opportunity to engage in a dialogue in which you can share your own perspective and teach them a thing or two. Maybe you can even start collaborating. It can begin small: let’s choose the color of a packaging. It can start with stories: how did you decide to found the company or get involved with it? Getting them engaged will not happen overnight, but it is crucial for increasing the chances connecting them not only to the business but to an important part of your life.
If you want your legacy to outlive you, you need to prepare the next generation as well and make them feel they are part of the business.
“Winning” might be different for everyone
Preparing your leadership transition is not about creating a clone to replace you, it should be about preparing your children to make well educated, thoughtful and often difficult decisions. And that doesn’t happen overnight. There are different degrees of involvement that your children may have with the business. It’s possible that not every member of the next generation will want to be deeply involved with the business and that’s o.k.
Your successors don’t have to work in the business to be relevant contributors to it. Being a responsible shareholder takes time and demands interest and commitment, and can have a huge impact on the enterprise and on all its stakeholders. Engaging your next generation with the business early on will help build an emotional connection, both with you and the business, and can help ensure that your family business legacy will endure. Succession does not have to be a painful process. And it can even create opportunities for fun moments and amazing memories.