Enrique Soriano

Inside Family Business

“THE final test of greatness in a Founder is how well he chooses a successor and whether he can step aside and let his successor run the company.” Peter Drucker

IF succession planning is important, why are the founders and senior generation members not letting go? Studies point in part to personality, ego, power and, most importantly, mortality. These attributes lie at the heart of succession planning (Ogden & Wood, 2008).

Most companies in the Philippines and even in the United States are family-owned.

Note that not all family-owned businesses are small; many of those listed in the Fortune 500 companies are family corporations. Unfortunately, 70 percent of first-generation businesses fail to reach the second generation due to sibling rivalries, fights over ownership control and personality conflicts, which can tear families apart. Another reason is that the goals and objectives of the founding generation are rarely the same as of those of the succeeding generation. Indeed, succession problems are the greatest threats to the survival of family businesses.

Family business leaders, particularly the entrepreneurial founders, often neglect the issue of succession because they are so protective of the business they started.

Although they want their ventures to survive them and to pass the torch of leadership on to their children, they seldom support their intentions by a plan to accomplish that goal. They just dream of continuing the business long after they are gone but take no steps to make that dream a reality.

The best way to avoid deadly turf battles and conflicts is to develop a succession plan. Without it, family businesses face an increased risk of faltering or failing in the next generation. Succession planning reduces the tension by gradually “changing the guard.”

However, most of the time succession planning begins in response to an external event such as illness, accident, death, marriage or separation. Planning should not be undertaken only as a reaction to a major health emergency of the family business leader/founder. For then, everything might just be too late.

One of the worst mistakes entrepreneurs can make is to postpone naming a successor until just before they are ready to step down. Sometimes founders avoid naming successors because they don’t want to hurt the family members who are not chosen to succeed them. Yet, both the business and the family will be better off if, after observing the candidates as they work in the business, the founder picks the successor

based on that person’s skills and abilities, early enough.

Grooming the successor can begin at an early age simply by involving children in the family business and observing which ones have the greatest ability and interest in the company.

Effective succession planning does not merely involve designating a family member and training him or her for the takeover. In fact, grooming the successor is the founder’s greatest teaching and development responsibility because it involves a long-term, continuing effort to balance competing interests and pressures that are integral in a family business. It should be comprehensive enough to define salient issues and identify a range of options for each issue; attempt to force submerged or hidden agendas out into the open such as conflicts between family members and in-laws over business goals and how these goals relate to their personal interests.

Another key feature of many successful planning processes is the third-party advisor or consultant to guide the family through the many intricacies of management succession. He or she would be able to help identify the relevant issues while avoiding interference that emerges from emotional factors.

The independent judgment of the advisor can serve as a means to resolve conflicts and overcome opposition by bridging generational gaps with his experience and expertise.

In my family business coaching work, mentoring second and third generation leaders, I have met many family business leaders who believe that they are taking considerable risks in transferring a successful business into the next generation. However, once they made a concerted effort to plan for succession, they were able to reduce these daunting odds.

The choice is yours. In practical terms, failure to plan for succession is simply a plan for failure.

(Prof. Soriano is an Asean Family Business Advisor and chair of the Marketing Cluster of the Ateneo Graduate School of Business. He is a National Agora Awardee and book author of Kite Runner, a book on Family Business Governance and Succession. For comments, you may email the writer at sorianoasia@gmail.com)