Succession planning can be a tricky thing, depending on what kind of enterprise you own. For corporate businesses, “may the best man lead” is the easiest motto and modus operandi. Performance and tenure determine who will be the next leader.
However, when it comes to family-owned businesses, the game gets even trickier. Familial relationships, personal vendettas, affections, and ownership rights become entangled, making unbiased succession planning difficult. Almost two-thirds of all private sector businesses in Canada are family-owned, making proper succession planning even more critical for the country.
With so much at stake for the business and the families involved, how does one even begin planning a leadership transition?
How Succession Planning Works
Three main challenges make the succession planning process complicated:
- Overlap between ownership and management: In family-owned businesses, family members who own the business are also running the company. This can sometimes create situations in which family and interpersonal disputes leak into the professional space, leading to problems in the company’s governance and management.
- Generational expectations: Founders of any business often find it difficult to hand over the reins to a successor. This usually happens due to differences in priorities – while founders prize loyalty, experience, and legacy, the new generation might be more inclined towards innovation and expansion. This tug of business philosophies may create problems in succession planning.
- Informal cultures and limited documentation: This is often a problem in family-owned businesses, where children usually learn the ropes of the trade informally in childhood by observing their elders. However, translating this informal knowledge into practical strategies and policies through a legal, compliant procedure can be challenging, creating setbacks and delays for the business.
What is the key to overcoming these challenges? Bringing the three parties – family, business, and ownership – on the same page through strategic integration.
How to Prepare for Succession Planning
Succession planning is balancing all these parties and the various challenges they present, while prioritizing the business and its future. Here are a few things that need special attention to ensure a smooth succession of the business.
- Assessing Current Leadership Structure
To decide what changes should be made, you must analyze your company’s status. The first step is to study your current leadership structure and identify the key positions that will be handed over to the next generation of leaders. Succession planning can also be viewed as an opportunity to change your leadership structure. Depending on how your business progresses, you can add new positions and roles or remove redundant positions that no longer serve a practical purpose.
- Defining Roles and Responsibilities
Once the broad and up-to-date organizational structure is in place, each key position needs to know their roles and responsibilities – roles that are well-defined and aligned with specific objectives. For instance, it is important to clearly define the responsibilities and powers of a CFO or CTO. Even the required qualifications for the job should be specified to ensure the hunt for a new candidate becomes easier.
- Matching The Role with the Right Talent
Here is where succession planning truly begins. Identifying and defining key positions in the business structure is difficult enough. But the real test lies in finding the right candidate for the proper role. For this, you need to evaluate not just the skills or expertise of potential candidates, but also other talents necessary to help the business grow, such as their attitude towards colleagues, team spirit, adaptability, receptiveness to feedback or suggestions, long-term vision, and eagerness to learn more. Above all, they should possess leadership qualities that inspire other employees and uphold the business’s values, brand, and legacy.
Ideally, shortlisting two such people is advised, so that if one leaves or is unable to fill the position, you do not have to repeat the entire search process. These people could be family members or existing employees of your company. In fact, inviting an external expert with experience in the areas you would like to take your business forward is also a viable option.
- Training and Mentoring Future Leaders
It is important to remember that succession planning is not simply replacing veterans with new blood. It’s about passing the baton and continuing the long run to business growth while seamlessly intertwining old values and new ideas. To make this possible, it is important to create a bridge between veterans and new talent. Having identified the right kind of people, you must train them well in advance for the roles they will soon be playing.
Creating a mentorship program that enables these candidates to learn valuable lessons from their seniors’ real-world experience is a great option. You can even assign small projects or assignments to candidates to give them a real sense of what they can expect in their new roles. It is such mentorship and training that elevates employees with the required skills to leaders with futuristic ideas and strategic genius.
This step is more critical in family-run businesses, as simply appointing a family member to a key position does not guarantee success. By encouraging them to attend board meetings or other business discussions, you can subconsciously train them in strategy, communication, and decision-making, and build confidence. It can also help create a shared sense of awareness, responsibility, and unity among family members.
- Monitoring Performance of Successors
The next step is to assess how your selected and trained candidates or family members perform against measurable performance metrics and key performance indicators (KPIs), such as growth in profits or revenue. Regular evaluations and reviews help you understand which areas or skills that needs work, as well as highlight any standout abilities they may exhibit. At this stage, you can readjust or shuffle roles depending on the review results.
- Setting Up a Governance Structure
One of the most essential steps in succession planning is separating ownership from governance. This is particularly important for family businesses to avoid personal clashes from translating into business losses.
While a CEO and CFO manage the company’s operations, family councils and advisory boards ensure the business follows family values and culture.
While the younger generation can take the reins of the business and expand operations, you can transition from operations to a governance role to ensure the family business maintains its legacy. This requires a share structure that gives you and the successors sufficient voting power.
Succession planning is a complex process that can take years to plan and execute successfully. If not done right, it can lead to complications and losses not just in your business, but also in your family. Thus, working under the wise, experienced guidance of a team of legal, accounting, financial, and business experts is the best way to plan the future of your business legacy.
Contact Ford Keast LLP in London to Help You with Succession Planning
A team of professionals can help you at every step of succession planning, from designing the organizational structure to share transfer to future leaders to a governance structure. At Ford Keast LLP in London, our accountants, business and tax consultants can provide services such as tax planning and execution of succession planning. To learn more about how Ford Keast LLP can assist you in succession planning, contact us online or by telephone at 519-679-9829.
