In business there are few greater questions than what comes next. This is especially true in family companies, where work is always personal, despite what management mantras might try and teach us. Succession planning is all too often left to the last minute or, worse still, until it’s too late. Between rivalries and personal agendas, it’s understandable that the sensitive nature of passing a life’s work to the next generation is a topic that most people want to avoid. But time waits for no-one, and one day the question of succession will be upon family business owners regardless. Marc Emmer is President of Optimize Inc, a growth consultancy specialising in strategic planning, and the author of Momentum, How Companies Decide What to Do Next. He explains how succession planning has been left from our vocabulary: “Our business culture does not promote candid conversations and the lack of structured performance management systems exacerbates the problem,” he says. “While uncomfortable conversations like these are entirely necessary and can unearth a litany of complicated legal and tax issues.” With that in mind, here are Marc’s eight steps to consider when planning for your company’s eventual succession process. 1. Set Specific, Long-Term Goals For Ownerships Planning should begin years before any succession takes place. During the process, both the current owner and any potential successor should set out their long-term goals for the business. Ask what you can do now to help those future goals be met. The more closely aligned your goals, the more seamless the transition – which will help both on a business level, and a personal one. 2. Establish A Set Of Managerial Competencies Draw up a list of the skills that you believe are essential in your role as company owner, and that are must-haves for any successor. This could be an eye for innovation, financial acumen, team management skills or, more likely, all of the above. This checklist can then be used to assess any potential successor, as well as help your current team understand what you’re already bringing to the company. 3. Evaluate The Management Team Who are the team around you, and what are their standout skills? Sometimes it takes an outsider’s eye to accurately map the talent in your departments, as well as to spot skill gaps. Consider hiring a firm to evaluate top level managers. 4. Debrief The Assessment Analyse the findings of this managerial evaluation against your checklist of required competencies. If any of the people you had in mind are lacking in some areas, then consider training programmes rather than writing them off completely. Offering development opportunities can be a handy way to assess if employees are moving in the right direction. And you never know, people who you never had pegged as a successor may reveal themselves as candidates, if given a chance to shine. 5. Seek Out High-Quality Legal And Tax Advice Transfer of ownerships come with significant legal and tax implications. Depending on whether you plan to give the business away, sell it, or transfer ownership in your will or through a trust – there are laws around tax avoidance and capital gains that, if not navigated correctly, can land you with sizeable bills. Always consult with quality tax and legal advisors, ideally long in advance of any succession commitment, as long-term tax planning may help ease future costs. 6. Create A Robust Performance Management System It may not be now, but stepping back from the business little-by-little – rather than leaving at once – can be a great way to help ease the transition period and help a successor bed-in. However, this process takes planning and, above all, a team who can pick up some of your owner’s responsibilities while you’re away. The best way to do this is to train your managers on staff accountability when it comes to their performance and business outcomes. With other people then concerning themselves with these daily operations, you’ll have more time to focus on top-line decisions and the succession process. 7. Identify The Successors Once you have evaluated your management team and assessed their skills and performance, it’s time to start speaking with your top people about their careers. These discussions will need to be both candid and confidential if both sides are to feel comfortable. Consider employing an executive coach to help you identify which candidates are saying all the right things. 8. Handcuff Your Best People These steps will only work if you’re able to keep the best talent in your company. That means providing incentives not only for senior managers to stay put, rather then jumping ship before you leave, but also to ensure that talent lower down the company has a path to commit to. Helping senior managers to progress through your company will allow them to gradually build the skills needed to assume your position. Promotions will create loyalty while providing a clear career path to your best staff. Not only that, a focus on talent instils a sense of purpose within your own role, setting them on the path to taking over the top job one day. “Timing is everything, and it is essential to think clearly about when to pull the trigger on transition,” says Marc. “Such decisions are vital to the sustainability of a company. They warrant methodical planning and thoughtful execution.” This article was first published by Vistage and has been reproduced with permission. It covers just one area of business where executive coaching and private advisory groups can help business leaders. From culture to growth to leadership to work life balance, no topic is out of bounds. Find out more about the work Vistage do here

Leadership succession is inevitable for most family businesses. Unfortunately all too often it is recognised as an issue but put to one side to be dealt with at a future point. This may be due to the fact that succession is seen as too hard or complex in terms of the family dynamic or because the existing governance mechanisms fail to identify the fundamental need to plan for succession. Properly managed and controlled succession becomes a process for a family business and not ‘an event’. Whilst most family businesses recognise the need to plan for leadership succession, a much smaller number actually take steps to formalise a plan and allocate implementation responsibility. Just Why May This Be The Case? It is a well-recognised fact that CEO’s of family businesses are in office three to four times as long as those from non-family businesses. This long tenure of office for the CEO may engender a false lack of priority about the importance of succession planning. Just because there appears to be plenty of time does not mean that this issue should be left to one side for the future. Indeed, what would happen should an unplanned succession event occur due to the ill health of the current CEO? Another factor as to why a plan may have been overlooked is that the family/business lack all or some elements of the appropriate governance structures, such as an effective board, family council and family assembly. These structures assist in the regulation of the inter-relationship between the Ownership of the business, the Management of the business and the Family. Achieving the right balance and connection between these three areas is vital to ensuring continuity and continued success through the inevitable changes that occur over time, both to the family and in the business world. Planning For Succession Planning for succession should typically be a 3 to 7 year event, sometimes even longer. One of the principle responsibilities of a Board of Directors is to plan for the CEO’s succession. When it comes to selecting the successor the appointment should be based upon who is the best person for the job. If a family member is to succeed the retiring CEO then their selection must be based upon ability, rather than blood line. To ensure that there are family members involved in top management successful long-lived family businesses have recognised the need for education. The concept of education for a family business has a very broad meaning, encompassing how the younger generation are educated in family values, about the family business and determining what level of formal education and work experience is required for those family members who wish to join the family business. By promoting a learning orientation the successful multi-generational family businesses lay the groundwork for family members to join top management based upon their skills rather than their blood line. Retirement Hurdles CEO’s of family business often find it hard to transition themselves out of their leadership positions as: They are used to the power that accompanies leadership and see any diminution in their authority as a challenge to their personal status, worth and reason for existing. They fear “what lies beyond the business”, because their lives have enjoyed such a strong focus on it. They cannot see anybody else in the business, the family, or an outsider who can know, love, suffer and achieve for the business as much as they have done. They want to protect their valued employees, or family, from the perceived challenges of command. They want to ensure that their retirement prospects are secure. Succession is never an easy issue to deal with for the retiree, business or the family, however if the process is properly structured and managed all the stakeholders will have confidence in the outcome. Eight Points For Successful Succession: Make succession a structured on-going process, rather than an event. The Board must take ownership of the process. Be professional and avoid nepotism. Appoint the best person for the job. Be objective, independent and impartial for the sake of your family, business and for those whose lives who depend on it. Appoint someone who understands the unique responsibilities of leading a family business. This person will act in the manner of a steward, rather than an individual seeking to maximise their personal wealth. Structure the transition between the retiring leader and the new one to ensure that years of business knowledge are not simply lost overnight. Respond to the old leader’s fear of the abyss. When the business has been their life, moving out of it is like stepping into the void. Help to ease their move. Work out how much is enough financially? How much money does the leader need to be financially secure? Do not search for, or try to create, a clone of the current leader – the successor should stand on the old leader’s shoulders, not just fill their shoes. Do not surrender your business and family timing objectives purely for tax/wealth benefits. Consider the long-term health of the family and the business.

Mike Wardlaw from Tilney sets out the key considerations for business owners Building a successful business takes years of hard work and sacrifice. Moving on from your business is one of the most important decisions an owner will make – but it’s one that is often put off until it’s too late. Planning well in advance how you will exit will ensure a smooth process and can unlock the real value of your business, whether you want to sell it, pass it on to the next generation, or whether the intention is to take money out of it now to support your retirement, or perhaps an alternative venture. Having advised many successful business owners and their families, Mike adds “the first question to be settled revolves around the future of their business and their future role. For example will it be a whole or a partial exit?” “This will include a consideration of whether you may want to pass it on to family members during your lifetime or upon death, or whether you want a ‘hands-off’ sale to a third party.” Each of these questions will influence the tax position, how existing staff members need to be incentivised and how the business should be prepared ahead of time. Smith & Williamson, who recently merged with Tilney, addressed succession in their most recent survey which found that family-owned businesses are not leaving succession to chance, but that they base family involvement on enthusiasm and merit. Few believe their children have an automatic right to succession and are most concerned about ensuring they have a family member with the ability and inclination to take over. The survey indicates that while 80 per cent of family business owners believe it is important for family members to be involved in the business, 78 per cent think it is important that they have business or professional qualifications if they are to enter an executive role. Before this process begins however, you will need to establish how much your business is worth and the type of exit that is appropriate to you. Do you want to retain a relationship with the business after exit, whether as a consultant, committed shareholder or in an executive role? “However someone exits their business, they will usually be left with a significant lump sum which may have to last for some time,” says Mike. “There will be financial planning consequences to any exit and there could also be issues around inheritance tax which need to be managed. If there is a possibility that you will hold the business until you die for example, it is vital to ensure that you minimise inheritance tax.” “Having worked hard to build a business, you may want to retire, use the capital to start again, do something else in between or pass it on to someone else." "Whether you want to transfer the business to the next generation, or discuss a management buyout, trade sale or setting up an Employee Ownership Trust, which are becoming increasingly popular, it’s never too early to ensure that your personal wealth and that of the business are structured as efficiently as possible.” Important Information - Nothing in this article is intended to constitute advice or a recommendation and you should not take any financial decision based on its content. Investments can go down as well as up and you may not get back the amount originally invested. Tilney Financial Planning Limited. Authorised and regulated by the Financial Conduct Authority.

A good Board Chair understands they are a facilitator to achieve the best outcomes rather than a ‘commander.’ They listen more than they speak, and they create the conditions in which directors can have robust and productive group discussions. "A good board chair shows restraint and resilience" They focus on the process which allows others to participate and enables directors to perform to their maximum. The leadership of a good Board Chair enables the board to function as the highest decision-making body in an organisation. From our experience working with Chairs and boards of a range of organisations, both public, private and not for profit, here are a few suggestions about the qualities and skills to consider when electing a Board Chair: Do They Have Emotional Intelligence? Look for someone who is an active listener, who can summarise the consensus from the discussion and clearly formulate and articulate actionable resolutions. Look for someone who knows when to let the discussion run, and when to corral the conversation. Can They Control The Meeting And Set The Tone? Their role is to moderate discussion between directors, directors and the CEO, directors and executive staff. The Chair is responsible for boardroom conduct and they must be able to immediately call out inappropriate behaviour and articulate what is acceptable. Are They Able To Cultivate Professional Relationships? They need the capacity to develop sound, professional relationships with both the CEO and Company Secretary. Good relationships will enable the board, through the Chair, to motivate, control, advise and mentor, and in effect, partner with the CEO. Do They Have Good Communication Skills? These are essential for working with fellow directors, CEO, executive staff, and other stakeholders such as shareholders and the media. A good Board Chair interacts individually with directors prior to meetings and communicates with them between meetings. Do They Understand Processes? A good Board Chair is well prepared. They ensure agenda items are strategic, material and ready for decision (and are something only the board can handle). They make sure the agenda allows time for directors to ask questions and discuss strategic issues. They are actively involved in the preparation of the board agenda with the CEO and ensure the board pack is delivered to directors at least five days, preferably including a weekend, before the meeting. They ensure the meeting is promptly followed up with minutes which clearly articulate resolutions that are easily communicated to the executive team. They ensure the board is supported by an annual calendar which includes all board and committee meetings and key decision topics. The Chair ensures committees do the in-depth analytical work so that they can prepare resolutions for whole board. A good Board Chair encourages self-reflection and self-evaluation. They ask themselves: “What is going to serve the board and organisation well? What is going to serve my fellow directors well?” They ask their peers “what do you expect of me as Chair?” The Chair’s job is to enable the board to fulfil their role in collective decision making. Ultimately, the Chair is the person responsible for making everyone on their board the best director they can be. About the author - John Harte is the Managing Partner at Integrity Governance where he leads a global team that is focused on making boards more effective. A boardroom expert working with multinationals and SME’s, he provides practical, impartial advice to directors, business owners and CEO’s to help improve performance. He is a regular speaker and thought leader on board effectiveness, practical governance and business disruption. John grew up in a family business and his extended family run fifth generation businesses and he has also served as a board member, chairman and adviser to many family firms. He also worked within Mars, a globally recognised family business for the best part of a decade.

A family constitution is a confidential family document outlining their vision and agreement on ownership and management of the business. So how do you create one? Why Create A Family Constitution? Every family is different and the individuals within a family will each have a different role, expectation and attitude towards the family business so a family constitution can help to: Clarify and guide the relationship between the family and the business; Clearly separate ‘management’ and ‘ownership’ related issues; Create a clearly aligned vision; Create forums for communication; Identify opportunities for education and development; Manage the expectations of family members; Ensure everyone understands their role and responsibilities towards the family business; Provide a point of reference for future generations. Who Could Benefit? All family business owners can benefit form creating a family constitution and they are particularly useful for family businesses that have: Some of the shareholders working in the family business but others who do not; Been considering the transition of the business to the next generation; Started to professionalise the way their business is run; Multi-generations involved in the family business; Geographical challenges with individuals located all over the country/world; Diluted shareholdings across a wide shareholding base. How Do You Create A Family Constitution? In essence the process of creating a family constitution would typically involve six stages. Stage 1 – Family Seminar It is important that this first meeting educates and informs everyone present as to the sorts of issues faced by family businesses around the world and the models that there are to help deal with these. This greatly assists everyone to understand what is possible and how other families have dealt with similar situations. The other key objective at this stage is the give the family the opportunity to decide, as a group, if they are happy to commit to the process. If the whole family agrees to go forward, there is a greater likelihood of a successful outcome. Stage 2 – Individual Meetings In order to understand the viewpoints and perspective of all family and key non-family members, individual meetings are essential. These meetings afford the individuals a confidential opportunity for them to give their views in an open manner. Having undertaken the individual meetings, the underlying circumstances and issues can be ascertained to help drive the next stage of the process. Stage 3 – Review Meeting A review meeting enables open discussion on the areas of difference to begin to educate the family on the areas that they need to give more consideration. Stage 4 – Drafting The Constitution At this stage, the first draft of the constitution would be prepared which would contain many different options and discussion notes within it. This draft would be distributed to the family in advance of the family retreat to ensure that everyone was given sufficient time to consider the content. Stage 5 – Family Retreat Having had time to consider the draft, a family meeting would be convened to discuss the content. The key aim at this stage is to involve the family in reaching a consensus on the issues identified to ensure that this can be incorporated into the final document. Stage 6 – Finalisation Of The Constitution The final document will be drafted and distributed to the family members. It is important that the document is reviewed on a regular basis and updated accordingly. The journey that each family goes on in drafting a family constitution is powerful in its’ own right and gaining consensus on key issues helps to drive the business forward with agreement on areas that could otherwise cause debate and unnecessary angst. As such, successful family businesses that have succeeded in passing the business through a number of generations embrace the need for professional governance structures to be in place, and the family constitution can be an integral part of this structure.

When a new CEO has been appointed that is only the first part of the succession process complete. The second stage is the all-important transition – the transfer of roles from the outgoing to the incoming CEO. Poor handling of the transition by the board could see the planning and effort put into the succession process put at risk. It could contribute to the possible failure of the new CEO to effectively transition into the business and make it more difficult for them to deliver top performance. According to some estimates between a third to up to a half of all CEOs leave after 18 months, which is very costly for organisations, both in the short and long term. There is a higher probability of failure when the transition process is neglected. A well thought through transition strategy, devised and implemented by the board, will help ensure the new CEO is effectively inducted and is enabled to add the maximum value at the earliest opportunity. In an effective transition the organisation is well prepared for a new CEO. It ensures the new starter is in tune with both the power dynamics and the culture of the organisation. The CEO transition will deliver a path toward productive relationships between the CEO and key stakeholders—including, most crucially, board members. The important question is – how can the broad deliver a smooth and effective transition? Engagement Between The Incoming And Outgoing CEO With a planned CEO succession, such as a retirement, the outgoing CEO should help the incoming one adjust to and understand the business. This process needs to start ideally nine to 12 months before the planned transition date. The outgoing CEO should share knowledge with their successor about the business, board, important organisational relationships and the culture of the organisation. The new CEO also needs to be briefed by the departing CEO on the personalities of those on the board. This approach is particularly important if it’s an external CEO appointment, but must still take place even if it’s an internal hire. Where working alongside each other as part of the transition process the departing CEO, and their successor, must have clearly defined roles from the outset to avoid confusion. Agreement is required on the details of their relationship; so questions need to be answered, including on what issues they will collaborate on? Do they want the board and the senior team to view them as true partners? Which decisions will the incumbent run by the successor? And importantly, what milestones or phases will mark their progress, and will the transition of power and responsibility be incremental or all at once? The boundaries between outgoing and incoming CEO need to be clearly defined during the transition process to avoid the distraction, confusion and ambiguity that lack of role clarity can cause. The successor must have real responsibilities from the start, with objectives closely tied to strategic and operational success, and a clear timetable for transitioning to the top job. The outgoing CEO, working closely with the board, must help direct the transition process. They need to remain fully engaged with their current duties and have responsibility for short term performance. They should also devote significant time to ensuring their eventual replacements’ early success. 360-Degree Clarity On The Business In the course of the transition process the board, along with the outgoing CEO, must ensure that the new leader has clarity on the role of the business, current strategy and future plans. Importantly, the new CEO must be clear on their role in taking the organisation forward, including desired outcomes. The incoming CEO needs clear performance indicators and clarity of expectations so they know what is expected of them and how they will be expected to steward the creation of value. 360-Degree Review Of The CEO It is important the CEO is assessed on these performance indicators at regular reviews by the board, to assess their effectiveness, identify development opportunities, provide support and ensure they are “fit for the future”. To ensure the CEO evaluation process delivers a vital 360-degree performance review, one that also provides an objective assessment, the board, chair and their direct reports must provide feedback on the CEO’s performance and development needs. This must involve quantitative and qualitative research based on interviews, and an online survey. Induction & Onboarding A New CEO It’s still not uncommon for newly appointed CEOs and directors to be left with a box of reading material from the board, such as previous minutes from meetings, information on governance procedures, for example, and be expected to get on with the job in hand. This leads to the induction and wider transition process taking a lot longer, or most likely ending in failure; potentially precipitating in the premature departure of the new CEO. Boards must understand that the onboarding, or induction stage, is one of the most important parts of the transition process. With many boards still operating in crisis mode and virtually due to the pandemic, it’s vital that the new CEO is able make a meaningful contribution to board deliberations from the start of their tenure. The best approach to take is via a formally structured “journey of learning” induction plan over 18-24 months. This needs to include a programme of visits and experiences across different parts of the organisation, a buddy system, and governance training. It’s the role of the chair, outgoing CEO and the wider board, to devise the induction plan for the new CEO and ensure its implementation. Board To Support The CEO At All Times There’s often a temptation for the board to step away and leave the new CEO alone as an expression of confidence in the new leader. However, this respectful gesture can have a negative impact on the transition process at what is a critical time in the life of the business. The majority of new CEOs will need support and advice from the board to help them quickly settle into their role, so they can add value at the earliest opportunity. At the same time the board shouldn’t micromanage – a balance is required. New CEO Must Be Proactive In Transition Process While the board plays a critical role in the smooth transition of the new leader, the onus shouldn’t only be on it. The incoming CEO must be proactive in engaging quickly with the board and building and maintaining strong relationships with all the directors. With the most important relationship in the governance system being between the CEO and the chairman, it’s particularly key that the CEO and the chair quickly build a professional rapport. Then, at the appropriate time, the new CEO should engage with and start to build relationships with the organisation’s broader leadership group, key shareholders and stakeholders, to understand their perspectives and any concerns, including willingness to accept risk and change. The premature departure of a CEO is often due, in a large part, to a lack of or limited transition process. What is needed at this crucial time is ongoing advice and support from the board and the departing CEO. The board must be proactive in investing time in planning and implementing a smooth effective transition – one that will help the new CEO to quickly add value. Failure to do so could lead to all the effort that they have put into the succession process – sourcing the new CEO – being wasted. Integrity Governance works with boards, CEOs and chairs around the world. For almost 20 years we have delivered the best of local insight plus a global perspective to ensure that governance is effective. Those boards that need advice on planning for CEO succession, transition, reviews and onboarding should contact our highly experienced team. About the Author - John Harte leads a global team at Integrity Governance that is focused on making boards more effective. A boardroom expert working with multinationals, SMEs, trade associations and not-for-profits, he provides practical, impartial advice to directors, business owners, executives and CEOs, to help improve board performance. He has 30 years of experience at director level in the corporate world, having worked at blue chip businesses including: Mars, Schroders and Goldman Sachs.

Jonathan Burke, partner and head of the industrial manufacturing leadership practice at executive search specialist, Berwick Partners , explores the skills and characteristics required by the next generation of family-run manufacturing business leaders. The post-pandemic era has seen a spike in the number of outgoing managing directors (MDs) and CEOs in family-run manufacturing and engineering businesses. The surge was fuelled by a combination of pandemic-induced burnout and reflection, as well as naturally timed succession. However, potential successors from within the family sometimes lack the capability, or the desire, to assume the mantle – assuming there is someone in the next generation to hand the role to. Despite this challenge, it presents an opportunity for family-run businesses to redefine their leadership and find individuals who can steer the organisation towards long-term success. What Does The Future Family Business Leader Need To Succeed? Family-owned and run manufacturing businesses often look for a custodian; someone in the image of the original founder, or current CEO, who can ensure the business continues to succeed. However, in today's dynamic business environment, marked by geopolitical shifts, rapid digital transformation, and the relentless pace of industry 4.0, this traditional approach carries inherent risks. To ride the wave of disruption, the future leader should embody three characteristics; the ability to embrace and effect change; experience of global markets; and a technology-oriented mindset. Specifically, they should be capable of fostering a culture of modern technology creativity within the leadership team. This type of individual is not only adept at nurturing innovative ideas, but also possesses a unique blend of technical engineering expertise, product development experience, and a deep understanding of the dynamics of family businesses. They can navigate the delicate balance between embracing the family-owned culture and cultivating a positive leadership environment that encourages entrepreneurship and the sharing of ideas. To effectively lead in a technology-driven landscape, the ideal candidate should ideally possess a solid technical engineering background. This foundation enables them to comprehend complex technological advancements and make informed decisions regarding their integration into business operations. Additionally, experience in product development and design equips them with the knowledge to align technological innovation with market demands, ensuring the development of innovative products that resonate with new and existing customers. Adaptability and exposure to diverse environments is also critical. Leaders with previous experience in large corporate environments often bring valuable exposure to diverse technologies, cultures, and markets. This equips them with the ability to navigate the intricacies of a rapidly transforming global business landscape and adapt to evolving industry trends. All of this must combine with the agility to work within the hierarchical structures often found in family-run businesses, ensuring a seamless integration of top-down decision-making with technology-driven entrepreneurial initiatives. How Can Family Businesses Find These Leaders? Traditionally, a family-run manufacturer would expect its CEO or MD to work within a commutable distance from its head office. But expectations among the next generation of leaders can often include a hybrid working arrangement, with the likelihood of declining an offer if these expectations are not met. Attracting these individuals therefore requires family-run businesses to consider broadening their previous recruitment parameters. Hybrid working may look like three or four days in the office, with the MD or CEO living near the site, working from home, and travelling, for the rest of the week. This expands the pool of potential candidates beyond the geographic location of the business and improves the chances of finding the most suitable leader, while also increasing the diversity of the shortlist. While flexible working will broaden the talent pool, offering development programmes will tap into a generation of ambitious and initiative-taking leaders. During the pandemic, most manufacturing markets saw a steep decline, with many careers, particularly at the director-level, stagnating. There is now a large cohort of driven young leaders, often from large corporate backgrounds, who are prepared to make riskier career moves and work in environments outside of their comfort zones, to broaden their experience and accelerate their career development. We are seeing increasing numbers of family-run business offering succession management opportunities, such as an extended on-boarding period to become familiar with the business, while shadowing the outgoing CEO, for up-to 12 months in some instances. This progressive strategy encourages successful candidates from outside of the organisation to make the step up, while the rest of the business accommodates the new leadership era. While succession may be a challenge for those businesses without a suitable candidate from within the family, it also provides an excellent opportunity to assess and appoint a high calibre leader from outside of the family who can successfully evolve the organisation. A large cohort of ambitious young leaders exists to fill these roles – attracting and harnessing their potential means embracing and adapting to the evolving dynamics of the new world of work. By doing so, family-run businesses can position themselves for a successful and sustainable future.

Succession planning and the engagement of the next generation and their development are key aspects that should be on the agenda for all family businesses. In this article we talk in more detail about one of the key aspects of succession of leadership which is the Next Generation Development Plan (NGDP). A Next Generation Development Plan is a document created for each member of the next generation who want to put their hat in the ring to take on a senior role within the family business. This is not just limited to the CEO/MD role. There are a number of other senior leadership roles within a business that require high level skills, expertise and knowledge. While many family businesses talk of a Next Generation Plan and will discuss what needs to happen, it is useful to have a written plan put together that clearly outlines: what is required, who is doing what and what the expectations are. This provides clarity for the person going through the plan, as well as a level of transparency for the rest of the family and by doing so heads off a lot of potential family disagreement and conflict. Getting the Next Generation ready and up to speed to be able to take on a senior role within the business is critically important to the succession process. By formally setting up a plan that everyone agrees and is aware of, provides a high level of transparency and helps manage perceptions of fairness across the family. There are several core principles that all good plans are based on. Let’s look into them. Merit The most important principle is merit. For anyone in the family to take on a senior role in the business, they must demonstrate they have the skills, knowledge and aptitude to take on the role. The whole reason for the Next Generation Development Plan is to help family members develop these skills and knowledge. However, it must be clear from the beginning that if they can’t demonstrate the required skills and knowledge they can’t take on the role. This is the risk they take— they are given every opportunity to develop the skills but if, after a period of time (potentially a few years) they can’t demonstrate competence, then someone else needs to be selected who can. This aspect of succession needs to be upfront and agreed by all members of the family and should be stated clearly in their Family Charter. Opportunities are provided with as much support and help as possible, but at the end of the day, they have to demonstrate they have the skills and any roles within the family business can only be appointed on merit. Outcomes The Next Generation Development Plan needs to be based on behavioural outcomes that can be assessed as objectively as possible — bearing in mind that this can be a challenge at times. The assumption being that as soon as someone demonstrates they have the skills, they potentially can move into the role. This is in contrast to saying that we’ll be doing this for two years and then it will be finished. This is why we have often seen relatively young family members get quite responsible positions because they have demonstrated the skills. Instead of putting a time deadline in a Next Generation Development Plan, work on them being able to demonstrate the required skills. For some, this might be quite fast and it’s all over and done within a year, while for others it may take longer — we know of one that lasted for 8 years. Skills Knowledge And Behaviour These are the things we are looking to see someone demonstrate. However, there is often a range of different skills and knowledge. For example, there may be clear technical skills, e.g., accounting or finance or a marketing degree that needs to be acquired. At the same time, there may be a requirement that the person can develop solid working relationships with staff, management, suppliers and other key stakeholders. Often, if they can’t build these relationships, they are just not suited for the role. We know of one son coming into the business being told that if he could not win over the confidence of the senior team, there was no way he could take over the business. He did and has been an outstanding CEO. Regardless of the type of skills and behaviour, it is important to outline in the document the type of skills and knowledge that the person needs to demonstrate. If it is formal qualifications, then it is talking about specific courses or learning, for example an MBA or a director’s course. For skills and knowledge, we need to be able to describe as clearly as possible using behaviourally descriptive language of what is required. Sometimes this is difficult as “winning the respect of the senior team” is not that easy to describe behaviourally. Whereas knowing a specific software package and running specific projects is far easier. Regardless, this needs to be as specific as we can make it. Who does The Assessing? This is an important question. Who is qualified and best suited to assess whether someone is ready? We have often suggested in the past that it is 1-2 family members who are involved in the business with a couple of non-family senior executives/managers. The key thing is for the assessment to be as honest and objective as possible. Working In The Business Or Not For many of the Next Generation, their development plan is part of the role they have within the business. This is useful as they learn huge amounts on the job and have access to senior people for mentoring and coaching. For those who are not in the business, there is an enormous number of skills and learning they can bring from other workplaces as well as formal educational qualifications they attain. When they come into the business, one of their first jobs will be to build solid working relationships. Work Outside Of The Business For A Period Of Time This is one of our core recommendations and we know a number of 'Next Geners' who swear by this. They learned so much about how other businesses work and bring an enormous number of ideas and new ways of doing things back to the family business. Mentoring On the job mentoring is an incredibly powerful learning tool. We’ve seen this done by non-family executives with years of experience, chairs of boards who teach younger members of the Next Generation what is expected of them and, of course, outside specialists. They all work well and so there needs to be a clear outline in the plan defining who is going to do this. As with all areas of succession, the earlier you start talking about, creating and explaining the Next Generation Development Plan to family, the better. This helps prevent and minimise conflict, creates clarity around expectations for family interested in working in the business and helps both the current and next generations prepare and plan for the succession process of their family business. All in all, the sooner the better. About the Author - Philip Pryor FCybS is the Founder & CEO of Family Business Central and Managing Director of Morphthink Pty Ltd. To find out more about a Next Generation Development Plan and/or the work that Philip does with family businesses in general, please contact Philip Pryor on philip@familybusinesscentral.com or visit their website here

Running a family business for many business owners is a privilege and something that they take incredibly seriously. Over their time in the business they have invested plenty of emotional and social capital, not to mention hours of toil in developing something and witnessed it evolved too. It is therefore not surprising that family business owners often struggle to let go of the reins. Particular reasons associated with the difficult in letting go include: Emotional Attachment : Family businesses are often deeply intertwined with the personal identity and legacy of the owners. Letting go can feel like giving up a part of themselves. Control : Owners may fear that relinquishing control could lead to a decline in the business's performance or even its demise. They may believe that they are the only ones who can ensure its success. Trust Issues : Trusting non-family members or even other family members with leadership roles can be challenging. Concerns about competence, loyalty, or conflicts of interest may arise. Fear Of Change : Change can be unsettling, especially when it involves restructuring or bringing in external professionals. Owners may resist change because they are comfortable with the status quo. Family Dynamics : Family dynamics, such as sibling rivalry or power struggles, can complicate succession planning and make it difficult to let go of control. Identity And Purpose : Owners often find purpose and identity in running the family business. Letting go can lead to questions about what they will do next and who they will become outside of the business. Financial Security : Owners may worry about their financial security post-retirement or after stepping back from the business, leading them to retain control for longer. Lack Of Succession Planning : Without a clear plan for succession, owners may delay letting go because they don't know who will take over or how the transition will occur. Fear Of What Comes Next : Stepping back from the business may indeed be the right thing to do but with age comes recognition that nobody lives forever and there may be a desire not to step back because of what might come next. Fear Of Too Much Time : For many business owners there life is the family firm and many are concerned about what they are going to do with the time that is no longer devoted to the business and this too may delay stepping back from the business. Overcoming these challenges often requires careful planning, open communication within the family, and the involvement of external advisors who can provide objective guidance. Succession planning and addressing emotional and practical concerns are crucial steps in the process of letting go in family businesses.

Business owners often underestimate the impact their death or incapacity will have on the short-term continuation of their business. In this session Paul Andrews talks to Hayden Bailey from Boodle Hatfield on the role that Emergency Board Plans (EBP's) can have in keeping a family business on track in the event of a crisis arising. Any business can be adversely affected by the death or incapacity of a key figure and an EBP can help provide key guidance and support to those immediately affected at what will undoubtedly be an emotional time for all concerned. What should an EBP contain and what should a family business have plans in place for? Decisions will need to be made in the first hour, first week, first month etc and a living document like an EBP can make a massive difference. Check out the session to find out more.

The transition from a first-generation family business to a second generation is a complex process fraught with challenges for many reasons, commercial and emotional. When taking to family business owners who have created something from a personal ambition and it has grown to a size that can be passed on to the next generation that they struggle to let go, find it emotionally challenging to pass on something that they have quite literally created, and feel alone when contemplating the decisions that need to be made. One primary difficulty arises from the emotional ties that founders often have with their businesses. The visionary zeal and personal sacrifices made by the first generation may create an emotional connection that is challenging to replicate, and a bond that is often referred to as 'an extra child' too. Consequently, second-generation leaders may struggle to match the same level of passion and commitment, or may be perceived to have lesser levels of such by the first generation founders. Another obstacle causing the first to second generation challenge stems from the shifting dynamics within the family. The first generation typically establishes the business, and as the second generation assumes leadership, familial relationships become entangled with business decisions. Striking a balance between family harmony and sound business practices can be delicate, leading to potential conflicts and strained relationships. Moreover, the skills required to start a business may differ significantly from those needed to sustain and grow it. The entrepreneurial spirit of the first generation might not seamlessly translate into the managerial expertise necessary for the business's continuity. This skills gap can hinder the second generation's ability to navigate the complexities of modern markets and evolving business landscapes. The skills required will also continue to evolve and as we see today when looking at multi-generational family firms, the CEO and leaders of today are very different to their equivalents from just ten or so years ago. In addition, resistance to change within the organisation can impede a smooth transition. Employees and stakeholders accustomed to the first-generation leadership style may resist new approaches introduced by the second generation. Overcoming this resistance requires effective communication, strategic planning, and a gradual implementation of changes to ensure continuity while fostering innovation. Furthermore, the lack of a well-defined succession plan often exacerbates the challenges of transitioning from the first to the second generation. Without a clear roadmap, uncertainty can prevail, leading to power struggles, ambiguity in decision-making, and potential disruptions to the business operations. Financial considerations also play a pivotal role in the difficulty of this transition. Second-generation leaders may inherit a business with financial constraints or outdated systems, necessitating strategic financial planning and investments to ensure sustainability and growth. In conclusion, the transition from first to second-generation family business is intricate, involving emotional, familial, skill-related, organizational, and financial challenges. Successful transitions often require a combination of effective communication, strategic planning, adaptation to change, and a commitment to preserving the core values while embracing innovation. Transition is never easy but does need to happen at some point and successful family businesses that go on to survive for many generations have solid governance frameworks, good communication and recognise the need to have honest and open conversations and to start the conversations and planning as early as possible to allow them a greater chance of success and achieving a successful succession process too.

Family business succession planning is a complex and challenging process that involves transferring leadership and ownership from one generation to the next. Several factors contribute to the difficulty of this endeavour and make it difficult for some families in business to navigate successfully. Firstly, emotional dynamics within families can complicate succession planning. Personal relationships, historical family roles, and unresolved conflicts may interfere with objective decision-making. Emotions can cloud judgment and hinder open communication, making it difficult for family members to align on a clear succession strategy. Secondly, balancing business competence and family ties is a delicate task. The most qualified family member may not necessarily be the best leader, causing tension between meritocracy and familial obligations. Striking a balance between competency and maintaining family harmony is a perpetual challenge in the succession planning process. Thirdly, inadequate preparation and a lack of formalised plans contribute to the complexity. Many family businesses fail to establish clear guidelines for succession, resulting in ambiguity and potential conflicts. The absence of well-defined processes and communication channels can lead to confusion and disputes among family members. Moreover, the transition from an entrepreneurial founder to subsequent generations often involves a shift in organisational culture. Maintaining the original vision and values while adapting to changing market dynamics requires a delicate balance. Differences in management styles and approaches between generations can create resistance to change and hinder the smooth transition of leadership. Estate planning and taxation pose additional hurdles. The complexities of legal and financial aspects can strain family relationships. Balancing the desire to treat all heirs fairly while ensuring the continuity and growth of the business requires careful consideration and expertise in various domains. Lastly, external factors such as economic uncertainties and market volatility add another layer of difficulty. Navigating the challenges of a dynamic business environment while simultaneously managing internal succession dynamics requires strategic foresight and adaptability. Family business succession planning is a formidable task due to emotional complexities, the delicate balance between family ties and business competence, insufficient preparation, cultural transitions, legal and financial intricacies, and external market pressures. Addressing these challenges demands a combination of open communication, professional guidance, and a commitment to preserving both family relationships and the business legacy.