Planning for succession in a family-owned business
http://www.ducttapemarketing.com/article/articles/279/1/Planning-for-succession-in-a-family-owned-business/Page1.html
Al McClymont
By Al McClymont
Published on 03/28/2007
Business management in family-owned companies is conditioned, as in any other company, by economic and organizational factors, but also by emotional issues. Succession planning is certainly one of the more critical issues a family owned business will face.
Planning for succession in a family-owned business
Autologica presents part four in a series of articles that address some of the common problems and situations that arise in family-owned businesses. The articles are based on an interview between Al McClymont, CEO of Autologica Dealer Management Systems, and J.C. Aimetta, an expert and coach who specializes in family-owned businesses and who has ample experience consulting for this type of company.
Al McClymont: An essential issue in family owned businesses is succession planning, a complex subject from whichever angle you choose to look at it.
A family business owner may feel quite reticent about handing over such a responsibility to a son or daughter. Or it may be possible that there is nobody really prepared or eager to assume that task.
There may also be complications, for example if there is more than one sibling, if there are in-laws, if the siblings have diverse qualifications, or if they have varied interest in the business. All of this can affect succession.
I recently read a story about an 80 year old dealership owner in the United States who finally decided to plan his retirement, only to find that his son, who he considered his only possible successor, was announcing his retirement as well. A dynamic owner who waited too long to transfer the authority and responsibility of the company’s management.
I have no doubt that succession must be carefully planned, with sufficient time, so as to prevent any possible surprises.
J.C. Aimetta: Of course you’re right. But first of all, it is necessary to define what we mean by a successor.
Because when we speak of a successor, there are actually two successors: one who succeeds the founder in the management of the company, and another who succeeds the founder in the ownership of the company. We can say that one is an heir and the other is the new CEO.
So we see there are two entirely different figures. There is one heir who will become the general manager, and other heirs who will not. Therefore, the management successor must understand that he or she is managing what in part is not his/hers, and must render accounts to his/her siblings as they would to any shareholder.
The problem with this is that rendering accounts is not a customary practice in a family-owned business because “Dad never did that”, because he was both owner and manager, and nobody renders accounts to himself. Hence, it must be learned: he who administers what is not his must render accounts to the legal owners.
Moreover, owners must legitimize, in the sense of making legitimate, of validating, the choice of the successor that will administer what is all of theirs.
When the choice is imposed by the father, and this is the cultural model in many countries, it is generally, not always but generally, the eldest of the male sons who is chosen.
And thus may a problem arise if the siblings consider that the eldest son is not the best person to manage what is theirs, if he is not the person they would have chosen for the job.
And what is even more absurd, many times the “chosen one” lives his responsibility as a family obligation and not as a benefit, because if possible he would not have chosen to be the manager of the family business.
In the next part of this interview, we’ll talk about specific problems that may arise regarding the plan for succession.
Read the previous articles in this series:
• Part 1: The main reasons a family-owned business can fail
• Part 2: What happens when one family member wants to sell their share
• Part 3: How to reconcile the interests of family members who work in the company, with the interests of those members who don’t
About the authors
Al McClymont is founder and CEO of Autologica S.A. (www.autologica.net). Founded in 1994, Autologica helps automotive, agricultural and construction equipment dealers around the world increase their bottom line through the use of its Windows-based Dealer Management System and CRM tools. Autologica has a presence in South Africa, the Middle East, Asia-Pacific, Mexico and South America. His blog can be found at www.thelightisgreen.com.
J.C. Aimetta is a consultant to more than 65 small and medium family-owned businesses. Negotiator in family conflicts and in the sale of family-owned businesses. Professor on the subject in graduate and post-graduate courses in 3 Argentine universities, and has given conferences in Panama, Guatemala, El Salvador, Costa Rica, Colombia, Ecuador and Venezuela.
Al McClymont: An essential issue in family owned businesses is succession planning, a complex subject from whichever angle you choose to look at it.
A family business owner may feel quite reticent about handing over such a responsibility to a son or daughter. Or it may be possible that there is nobody really prepared or eager to assume that task.
There may also be complications, for example if there is more than one sibling, if there are in-laws, if the siblings have diverse qualifications, or if they have varied interest in the business. All of this can affect succession.
I recently read a story about an 80 year old dealership owner in the United States who finally decided to plan his retirement, only to find that his son, who he considered his only possible successor, was announcing his retirement as well. A dynamic owner who waited too long to transfer the authority and responsibility of the company’s management.
I have no doubt that succession must be carefully planned, with sufficient time, so as to prevent any possible surprises.
J.C. Aimetta: Of course you’re right. But first of all, it is necessary to define what we mean by a successor.
Because when we speak of a successor, there are actually two successors: one who succeeds the founder in the management of the company, and another who succeeds the founder in the ownership of the company. We can say that one is an heir and the other is the new CEO.
So we see there are two entirely different figures. There is one heir who will become the general manager, and other heirs who will not. Therefore, the management successor must understand that he or she is managing what in part is not his/hers, and must render accounts to his/her siblings as they would to any shareholder.
The problem with this is that rendering accounts is not a customary practice in a family-owned business because “Dad never did that”, because he was both owner and manager, and nobody renders accounts to himself. Hence, it must be learned: he who administers what is not his must render accounts to the legal owners.
Moreover, owners must legitimize, in the sense of making legitimate, of validating, the choice of the successor that will administer what is all of theirs.
When the choice is imposed by the father, and this is the cultural model in many countries, it is generally, not always but generally, the eldest of the male sons who is chosen.
And thus may a problem arise if the siblings consider that the eldest son is not the best person to manage what is theirs, if he is not the person they would have chosen for the job.
And what is even more absurd, many times the “chosen one” lives his responsibility as a family obligation and not as a benefit, because if possible he would not have chosen to be the manager of the family business.
In the next part of this interview, we’ll talk about specific problems that may arise regarding the plan for succession.
Read the previous articles in this series:
• Part 1: The main reasons a family-owned business can fail
• Part 2: What happens when one family member wants to sell their share
• Part 3: How to reconcile the interests of family members who work in the company, with the interests of those members who don’t
About the authors
Al McClymont is founder and CEO of Autologica S.A. (www.autologica.net). Founded in 1994, Autologica helps automotive, agricultural and construction equipment dealers around the world increase their bottom line through the use of its Windows-based Dealer Management System and CRM tools. Autologica has a presence in South Africa, the Middle East, Asia-Pacific, Mexico and South America. His blog can be found at www.thelightisgreen.com.
J.C. Aimetta is a consultant to more than 65 small and medium family-owned businesses. Negotiator in family conflicts and in the sale of family-owned businesses. Professor on the subject in graduate and post-graduate courses in 3 Argentine universities, and has given conferences in Panama, Guatemala, El Salvador, Costa Rica, Colombia, Ecuador and Venezuela.