Making succession a smooth-sailing affair

Naveen Khajanchi | Updated on November 08, 2020

A hassle-free succession plan in family-owned businesses can ensure operations of the firm are not hit

The succession process in family-run businesses can be a tricky one. Ensuring a smooth succession is often a challenge. Sometimes the situation can slip out of control, leading to much discomfort for the business and its staff.

Instances of uncertainty, loss of mutual trust and respect, poor morale, activation of wrong push and pull factors, inactive independent directors, and washing dirty linen in public are common in family businesses.

Ownership and management needs to be separated; a professional CEO must be brought in but to whom that person will listen to on operating matters can become an issue. Approaching the board for day-to-day affairs may not work.

Some family members may want a professional CEO, while others may want to run things themselves as they want to retain control and power. A weak set of independent directors end up being “Yes men”. In some companies multiple generations, cousins, in-laws, public shareholders, professionals are already present in some form and “behind the back alliances” of mutual conveniences too are struck.

Often when a founder dies, there is no one, inside or outside the family, to take charge or who is acceptable to most. Lack of developing a talent pool within the family is common.

Some companies have one large shareholder and several others who are scattered.

Open communication

It is important to open all channels of communication and address the fears and concerns of all parties.

The legacy of the founder and his wisdom should form an important part in charting future strategy. At times an independent team can help start the process and take it to a logical direction/conclusion. The interests of the minority shareholders must be protected.

Charting out a succession plan is a complex process where planning plays a crucial role in avoiding conflict.

The aim must be to create a safe space where people speak out and express themselves. The whole process should be objectively recorded, discussed and may be even put to vote.

Here, extra attention must be given to protect the interests of a minority shareholders. This reduces the chances of heart burn, strained relationships, conflict among family members and also helps in sustaining the business.

Taking decisions in a collective manner is advisable as each member is is empowered with responsibility.

Smooth transition

Two-way communication between the successor and stakeholders in a transparent and amicable manner is important to show that everyone’s on the same boat.

Once the decisions are committed to and agreed upon, they must be implemented in right earnest.

A new incumbent scrapping age-old office practices, such as Diwali Puja, can lead to disquiet among the staff and send a wrong message. The old office rituals often serve as informal bonding sessions and doing away with them can sometimes balloon into a major crisis.

Sometimes when a younger family member takes over, the change should be handled with sensitivity to make the older generation accept the new reality of the gen next taking over.

The next gen should also be sensitive and ensure that respect or values are not compromised especially on issues that do not carry much weight with older generations — gender diversity, work-life balance, digitisation are some such common issues. Reverse mentoring is a great tool here.

For successors coming from outside, cultural alignment/understanding is a must. Family businesses have a culture and past which need to be kept in mind. Changes that clash with the core values of the founder family must be avoided.

Family-run businesses usually reward loyalty. This can sometimes lead to conflict when an outsider is brought in to run the company. The new incumbent may not value the contribution of “old-timers” leading to clashes with the “old guard”. This can affect the business interests of the company and sometimes compliance functions also get impacted.

Eventually it is about all about protecting the legacy of the family. An early start to the succession process which is transparent will be less troublesome for future generations.

The writer is Director, Executive Search Service, a division of NKH Foundation Pvt. Ltd

Published on November 08, 2020

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