For most family and closely held businesses, succession planning is the toughest and most critical challenge they face. Yet succession planning can also be a great opportunity to maximize opportunities and create a multi-generational institution that embodies the family’s values and mission for generations to come.
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The Family Business Institute assists family owned businesses in multi-generational succession planning by helping them address issues related to not only the ownership succession but also management succession planning and leadership development as well.
88% of current family business owners believe the same family or families will control their business in five years, but succession statistics undermine this belief. According to The Family Firm Institute, only about 30% of family and businesses survive into the second generation, 12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond. There is a disconnect between the optimistic belief of today’s family business owners and the reality of the massive failure of family companies to survive through the generations. Research indicates that failures can essentially be traced to one factor: an unfortunate lack of family business succession planning.
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+ Management Succession Planning
Management succession planning in the family company requires focus on the four key departments present in any business of any size: administration and finance, operations and customer fulfillment, sales, and marketing. When we think of management succession planning, we’re not talking about who will own shares or assets in the future; we’re talking about who’s going to do the dirty, thankless, and countless tasks which make the family business an asset worth preserving in the first place.
+ Ownership Succession Planning
The current state of ownership succession planning among family businesses is decidedly mixed. About two-thirds of family business owners report a good understanding of the amount of estate taxes due upon their deaths, but about one in five have no estate planning at all! Over one-third of junior generation family business members have no knowledge of the senior generation’s transfer plans! Ownership succession planning issues that seem to be the most common areas of contention or omission in family business succession planning are: 1) Technical mistakes, 2) Planning in a vacuum, 3) Leaving the business to the surviving spouse, and 4) The challenge of treating children equitably
+ Leadership Development
Leadership is often a murky and nebulous concept, but it is important. How many times in the sports world have you seen a coach or manager fired and a new leader come in, take his place, and with the same cast of characters produce far different results? Leaders in family and closely held businesses are, as Reggie Jackson of the New York Yankees once described himself, “the straw that stirs the drink.” Leadership experts around the world can point to the quantitative impact leaders make. Warren Bennis says, “Leadership accounts for, at the very least, 15% of the success of any organization.” Afsaneh Navahandi says that leadership can account for up to 44% of a firm’s profitability. Researchers at the Wharton School of Finance concluded that between 15% – 25% of the variation in a corporation’s profitability was determined by the character of their chief executives. In a small study, 40% of the variation in the herring catch among fishing boats in the North Sea depended on the leadership of the boat’s captain. Even researchers attempting to debunk the power of leadership concluded that it accounts for a minimum of 7% – 14% of a company’s performance! Leadership development in most closely held businesses consists of on the job training (OJT). This is certainly one way to skin the cat; however, keeping next generation leaders and managers in 80 hour weekly production jobs crowds out many other leadership development tools and techniques. The Family Business Institute augments traditional OJT with other leadership development initiatives to assure closely held business leaders – irrespective of generation – they have the right team with the right skills in place for future business success.