I came across this great NYT piece by business author Sonia Kolesnikov-Jessop that succinctly and usefully outlines a number of the most important issues that individuals and families need to carefully consider with regard to transferring control of a business to the next generation.
Although the article is focussed primarily on Hong Kong, its lessons most certainly apply more broadly. A few of the key points:
- Management and ownership succession are NOT the same thing. When developing a succession plan that involves any sort of split between the two, it is critical to carefully evaluate a host of complex factors including the relative strengths and weaknesses of the inheritors, how the various parties will react emotionally and intellectually to their various assigned roles and, of course, the eventual reactions of other executives and the company’s customers. Vast numbers painful sibling vs. sibling lawsuits could be avoided simply by paying closer attention this frequently thorny issue.
- Prepare for the transition well in advance. If the new leader or leaders of the company aren’t ready to hit the ground running on Day 1, they’ll be facing long uphill battle to regain the confidence of their co-workers and the broader marketplace. Once roles have been set and a calendar is in place, there should be significant time allowed for everyone to fully understand the complexities and nuances of what day-to-day life will be like once they’ve assumed their new positions at the company.
- Ensure the new generation understands the business’s original source of success. In any succession plan, the importance of communication – particularly about what things were like in the past, how they’ve changed and what is likely to change in the future – should never be underestimated. It’s amazing how ofter parents simply assume their children understand what they actually do. I’ve said it before and will say it again – NEVER ASSUME ANYTHING. The role of the elder generation should ideally be a long-term mentorship – before, during and after the transition. Old fashioned story-telling might seem quaint. It isn’t.
- Make sure next generation develops close relationships with all relevant advisers: e.g., attorneys, wealth managers, shareholder consultants, high level executives, outside consultants, etc. These are all key players. It can take a long time to develop genuine trust and respect – both of which are necessary to ensure the succession goes as smoothly as possible.
There’s much more in the article itself including helpful explanatory anecdotes. And again, the fact the piece happens to be asian-focussed in no way makes it less relevant for those planning a business succession here in the US.