Soriano: Never too early to start succession planning

AFTER years of entrepreneurship, you’re looking forward to the day when you can retire, secure in the knowledge that the business you’ve built is safe for another generation. But planning to hand over the family business takes a succession plan. However, business succession is no simple family matter.

Smooth succession planning is something that takes time, and the handoff needs to be carefully planned and executed if it is to be successful. Even if you have no plans to retire, succession planning is needed in the event something dire happens to you – death, serious illness or disability. Just like a physical obstacle course, succession planning for family businesses is like an obstacle course. You have to find the obstacles, then overcome them... fly over them, dig under them, outflank them to move around them.

Hence, succession planning for your business needs to be developed years before the handover takes place. Succession often fails because of poor planning and mentorship, as well as an unwillingness or inability of the successor to make the business succeed. Experts advise that planning should begin as long as 15 years before retirement.

A common mistake that business owners make is assuming their kin will want to take control when the time comes. "The next generation has to have the combination of wanting to do it and being good at it," says Todd Millay, executive director of the Wharton Global Family Alliance, a private entrepreneurial think tank associated with the University of Pennsylvania’s Wharton School of Business.

In early 2006, ABN AMRO Private Banking commissioned INSEAD, a leading business school, to undertake a research project into the emotional aspects of wealth transfer and inheritance in Asian families. The study, the first of its kind to be conducted in Asia, provides an unprecedented insight into the seldom-shared views of more than 30 of Asia’s high-net-families from Hong Kong, India, Indonesia, Malaysia, Singapore and Taiwan.

The last two decades have seen an unusual pace of change in the social and business landscape in Asia. Asian families are becoming increasingly exposed to Western influences. For example, 33% of survey respondents with children, who are studying for or have completed an undergraduate degree, educated them abroad. 26% had MBAs from US and European business schools. The result is a generation with a radically different outlook on life and success, which is challenging traditional Asian family values and business practices. For young graduates with a multitude of career paths to choose from, inheriting the family business can feel like a burden. A sense of duty clashes with the desire to pursue personal life goals and aspirations. This can be aggravated by parents who insist on controlling the family firm after retirement.

Make your succession planning work

The continued success of family firms will rely on the parents’ ability to let go, rather than continuing to be a dominant force even after retirement. Involving children in the management of family wealth can be a good entry point for bringing them into the inner workings of the family business. Leadership examples are crucial.

Choosing a successor can be tough, and the best person may not be a family member. Consider your goal: Do you want your business to continue under family ownership or management no matter the outcome? Or do you want your legacy to live on through the business, even if it's not run by your children? Keep an open mind. Regardless of their blood relationship, it's important to evaluate your successor's professional and personal strengths and weakness vis-à-vis stepping into a leadership role.

If your kin are taking over, you may first encourage them to get college degrees, assume a non-management position in your company or work for a competitor to get a better feel for the industry, Millay says. This will build their knowledge of the business and their credibility with other employees, who may otherwise dismiss a successor as simply the owner’s son or daughter.

Mentoring can take several years, even if your successor has worked in your company. If possible, have someone who isn't a family member but works in the business serve as the mentor. Millay advises trying to evaluate your successor objectively and relying on input from partners, investors, managers and employees.

Your succession planning will probably include adjusting your business plan. Your successor should participate in this process, as it will help transition your business and set future goals. Set timelines for the ownership change.

You may want to continue assessing your successor after you've handed over the reins. You can stay invested in the company and gradually disengage as the company's profits or revenues rise. To maintain objectivity, consider creating an agreement to set the benchmarks for increased ownership.