Family businesses are unique entities and are different from every other type of business and there are many factors that can affect the continued success of the business. Clearly not all members of the founding family will have the same business acumen and their spouses can also have an impact, for better or worse, on the continued success of a business.
For example, Thomas Coutts second wife was an actress, Harriot Mellon, whom he married around six weeks after his first wife's death. On Thomas Coutts death, his horrified family learned that he had willed the business and the entire fortune to Harriot. Harriot had control of the bank and all aspects of the business and it's assets. The members of family feared she would spend the money and ruin the business. However, apparently she was astute, cautious and stabilised the finances of the business and eventually earned respect from those who had mocked her. Similarly, Mary Boot, the widow of John Boot, the founder of Boots the Chemist, also managed the business successfully together with her son Jesse, after Mr. Boot died. Jesse also showed impressive business judgment. They worked to create a nationwide chain. Jesse was knighted and subsequently made a Baron for his philanthropy.
Not all family businesses have such capable family members and shrewd succession planning is essential. Family dynamics, including sibling rivalries, differing goals and lack of formal governance, can devastate even the most stable business. Frequently succession is ignored and left to the last minute, often due to the founder not wishing to hand over the reins. Also the strategic roles within the company are not always handed to individuals who actually have the appropriate abilities to handle the role but are given to family members who are defined by age or family hierarchy rather than skills and qualifications. Appointments based on nepotism rather than merit frequently cause inefficiency and can cause disaster.
In order for a successful transition, succession planning should begin years, not months, before the actual transition. This allows ample time for family members who hope to be involved with the business to develop, gain experience, potentially initially outside the family business, which will enable them to have a proper understanding on how the business should be run. There should be clear policies to cover all eventualities, including issues such as divorce, disability and how serious disagreements are to be managed.
Unexpected Circumstances
The possibility of sudden death should be considered. Clearly this is a highly upsetting situation which can be made infinitely more difficult for the business if there is no plan of action in a situation where a strategic commercial negotiation is being undertaken and there is no wing man that fully understands the standpoint of both the family and the best interests of the business, which often leads to the loss of a crucial opportunity at a sensitive time.
The astonishing murder of Gianni Versace in 1967 was to some extent assuaged by the fact that there was a succession plan in place which was drawn up when he became ill some time previously. Fortunately, Donatella, his sister, as had been arranged, stepped into his role and was well supported.
However, the death of Rodolfo Gucci resulted in in-fighting and mis-management which severely impacted on licensing deals and cash flow which destabilised the business and very nearly caused its collapse.
Similarly, Coca-Cola came close to disaster when Doug Ivester was selected to succeed Roberto Goizueta, the long- time CEO who had mentored Doug Invester for ten years. Despite working beside Roberto Goizueta for some years, he did not cope well with the role, demonstrating how fragile succession issues can be, notwithstanding the best laid plans.
The untimely death of Mike Lynch, former owner of Autonomy, who was in the middle of a contentious legal battle with Hewlett-Packard focused on the sale of Autonomy to Hewlett Packard, where Hewlett Packard contended that the value of Autonomy was seriously overvalued and Hewlett Packard pursued Mike Lynch in a criminal case in the USA where he was acquitted by the jury on all 15 charges. However, the civil case against him undertaken in the court of England and Wales which ruled that Mike Lynch and Autonomy had been induced to over pay in the purchase of Autonomy due to fraud and misrepresentation. The still on-going situation could result in the value of the entire estate of Mike Lynch being paid to Hewlett Packard rather than the heirs. Yet again this demonstrates the importance of keeping a firm hand on your succession plan.
The roles of family members should be clearly defined and the chain of command should be absolutely fully understood by all, ensuring the next generation should be fully prepared.
The founders of successful businesses, especially those that have lasted through the test of time, often operated in a very different commercial climate to that which exists when the time comes to give way to the next generation. The transition can be challenging if all parties have not properly considered how and who will be involved in the transition.
Effective Succession
- Early planning
- Establish governance structures that define the roles and responsibilities
- Outline the chain of command
- Create a Board of Advisors, possibly including non-family members to provide objective insights
- Develop a constitution that provides guiding principles and includes the guiding principles and conflict mechanisms
- All appointments must be merit based
- Address any financial and legal issues, such as share ownership and shareholder agreements with the help of financial and legal professionals.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
