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Succession in family business is not an event but a process

The concept of succession has been with us since man started to live in an organised society. An organised society, by definition, presupposes a leader to head that society, protecting and providing for its members.

Kings, emperors, religious leaders and political leaders must consider and plan for the continuity of society when they are no longer at the helm. Continuity is just as much a key concept in the corporate world since companies that have no proper succession planning process are destined to lose the right path and wither away.

Succession planning is nothing more than having in place a systematic process to identify new leaders to replace old ones, developing people to take on key roles when the time comes.

Proper succession planning at the top levels of any company, be it large, medium or small, ensures a continuity that gives confidence to employees, clients and all stakeholders. And it is for this very reason that many companies are starting to understand that it is very much up to them to embark on this process to prepare people already within the company structures and culture who understand the business along with its medium to long-term strategies. Internationally, there have been a number of companies, large renowned ones, that have eventually collapsed because of this leadership gap.

In Malta things are not too different. Succession is clearly always an issue just like everywhere else, but this is usually more of a family affair. The majority of Maltese businesses, 75 per cent, in fact, according to government statistics, are family-owned. This is a huge percentage, with the advantages and disadvantages it brings with it.

75% of businesses in Malta, according to government statistics, are family-owned

Most of these businesses are passed down to the next generation, but ultimately only around 30 per cent manage to survive. Less than 10 per cent make it to the third generation. The reasons for this are many, and it is not my intention to go into this. What must be said though is that such entities should always have a plan in place to cover all eventualities, to ensure that no situation could ever catch them off guard.

Most family-owned companies start off with a single founder or founding couple. The founders are usually ambition-driven, passionate and entirely focused on the success of the business. Overall, founders are hopeful that their descendants continue the business they have set up, but sometimes they themselves make it hard for their children to do so.

In some families, the parents pass on the daily management of the company to the children long before giving up control. This practice is gaining popularity, as it has the advantage of allowing a longer transition period while also creating a less traumatic transfer between generations.

A somewhat similar set-up emerges where the family members own the business but the daily management is carried out by employees. This approach can also be an interesting way of keeping a business healthy, as we are seeing a growing number of family businesses bringing in non-executive directors on their boards. The board is an asset of that is very often underutilised.

As we all know, boards of otherwise well-performing family companies sometimes include people who, even though family members, should not really be there at all. Carefully chosen outside directors, on the other hand, can add value to the board by contributing their experience and knowledge, bringing in with them new ideas and disciplines.

Such companies can also seriously consider selling a percentage of the company shareholding. This would allow for the introduction of new blood, fresh ideas and the possibility of reorganising the company structure to make it more functional. The interests of the company should always be the ultimate goal, and restructuring can, and should, ensure that personal interests never take the upper hand.

That said, a number of companies have a different sort of succession issue – with no successor in sight or the ones that could actually take over this position showing no interest whatsoever.

In these circumstances, it is difficult for the current owner to understand and accept the situation, irrespective of whether they are actually the founders or someone who had inherited the business in the past. Unfortunately, there aren’t too many possibilities available in such a situation.

The current owner must start looking at having a plan in place long before he actually needs it.

We have seen a number of apparently solid companies in this country die a slow and agonising death, just because nobody considered the options available in a timely manner. Many a time it makes sense for the owner to start looking around, to see if there is the option to sell the company.

This, however, should be done when the company is at a high point, to ensure getting the highest return possible. Engaging a corporate broker in such circumstances can be of great help when gauging the possibilities the market has to offer.

Alain Guillaumier is a management consultant at Baviere – Corporate Brokerage.

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