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Managing Successions in Family Businesses Published: Sunday, September 14, 2003 By: Dr. Manuel Ángel Morales

Managing succession dynamics is a significant challenge to both families and consultants. Succession involves some sort of ownership or management transition or both.

If, after the assessment phase, succession is the key priority or problem to be managed, then it is necessary to create an environment that is associated with successful transitions. These desirable conditions that need to be found in the family, in the business and in the ownership and governance system are the following:

Conditions in the Family System. The family shares a common view of what is fair and equitable. The family plans for unexpected emergencies (death, illness of key family managers) and therefore has created buy-sell agreements and so forth. The family is able to manage conflict successfully. The family has organized goals and a fair vision of the future and they agree whether the business should continue to be run by the family, turned over to professional management, or even sold. And last but never least, high trust exists within the family.

Conditions for the Business System. The transition occurs when the business is relatively “healthy”. The founder and family leader moves gradually away from active involvement in the business operations. There is a well-developed training plan for successors in which mentoring of successors is critical. There is an interdependent relationship between the founder/family leader and the successors.

Governance and Ownership Conditions. Power relationships are clear, so there is little ambiguity; The Board has access to necessary expertise to manage the succession issues within the family.

The goal of the organizational consultant is to create these conditions in the three systems and there by improve the chances of successful transitions. Among the tasks to be undertaken are the following: It is fundamental to assess the current ownership structure and develop an scenario of what ownership should look like after succession. It is also important to ponder the current state of the family will(s) or other contingency plans, such as buy-sell agreements, making sure those documents are consistent with the succession plan.

A key aspect of this process relates to developing a framework for selecting, training, and mentoring future successors. Because these undertakings naturally generate some tensions, it is desirable to conduct family team building activities to strengthen relations, trust, solve conflicts, and develop common goals and values.

It is necessary to provide coaching to the founder, create an effective board to provide a forum for professional and expertise discussions and determine the managerial or organizational weakness that need to be improved if the business is to grow.

The purpose is to assure prosperity under the new leadership.

 


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