Choosing a successor for the family business can be challenging. Most family firms in Singapore struggle with the first transition, with only about 13% of firms being passed down successfully to the third generation, according to research done by KPMG.
Not all family businesses prioritize having a proper succession plan. In the same KPMG survey, 32.1 per cent of family firms surveyed have no structured succession plans. While it might be a daunting task to think about, a documented plan ensures clarity and sustains the legacy even after you or a key person leaves. Here are some succession planning techniques for family firms to consider.
#1 Involve The Next Generation Early
Successful transitions doesn’t happen overnight. It takes time for the successor to rise up to the challenge and carry on a legacy. Start by exposing your potential successors to the business early, it could be sitting in business meetings, interacting with key employees or working in the company during school holidays.
If your potential successors are involved in the business from a young age, it instils a greater sense of belonging and togetherness. It also means they may understand and embody the values of the company, better so than a newly joined employee.
If your successors are already involved in your business, consider having it formally documented. Sketch out a detailed roadmap for your potential successors so they can pick up experience and skills on an organised path. With a structure in place, it is easier to track improvements and for successors to have clarity of their progression.
Read also: 4 Financial Ratios That Startup Owners In Singapore Need To Know
#2 Reduce Reliance On A Single Individual
In the first generation, the entrepreneurial spirit is often at its peak. Having built the business from scratch, the founder tends to have strong entrepreneurship, a hands-on mentality and an authoritarian leadership style.
Such traits lead to a successful business, but when it comes to legacy and succession planning, it can be tricky for the owners to share the control.
Smooth successions build trust in the next generation. Relying on just one person to call the shots is not sustainable in the long run. As the business grows, it might even take several senior positions to fill the responsibilities that the owner used to cover.
Family firms, just like any other business, must hire for the future. All business owners will inevitably retire and companies should hire with succession planning in mind, be it filling for leadership roles or lower management positions. Apart from grooming a specific successor, preparing a source of viable internal candidates for top positions also makes for a skilled team, which further contributes to a smooth transition.
Read Also: Here’s Why Small Businesses In Singapore Need To Care About Employee Retention
#3 Institute Proper Governance Structures
Family businesses tend to have flat structures, where there are few levels of management between staff and executives as the owner makes the most decisions. Family firms might thus think that having governance protocols is unnecessary.
But in a landscape where family and business are heavily intertwined, having a formal framework to facilitate open discussion and keep everyone on the same page helps to ensure that family values or business interest are not compromised.
Start by introducing a family constitution. It is a formalised document outlining a set of rules to abide by in the business. It clarifies boundaries: are spouses or in-laws to be involved in the family business? How is the next successor selected? How should remuneration be decided for family members?
Form a family council, who will act like a board of directors. Hold formal family meetings keep all family members in the loop. If disputes arise, it can also be heard in the council. Having a structured way to iron out strains in the family can reduce tension and facilitate open communication.
#4 Be Open To Options
Most family firms will want the business to be passed down to the next generation. But it is not always possible to find a suitable and interested candidate.
If such a conundrum is present, another succession outcome to consider is partial professionalisation. Such a trend becoming a common succession outcome, where non-family members are appointed in key positions such as CEO or Chairman.
For instance, Jumbo Seafood’s CEO Ang Kiam Meng shared that while he hopes his family will take over management upon his retirement, he is also open to bringing in professional managers if they are more capable.
While Ang is currently still the CEO, he hopes that the business will not become a burden to future generations and will consider partial professionalisation when he steps down.
Family firms should prepare for transitions accepting that there might not always be a next generation who is ready or willing to continue the business. If so, other exit strategies could be a trade sale or an Initial Public Offering(IPO).
Plan With An Eye Towards The Long-Term
With most family businesses in Singapore being established after World War II, many family owners are now in the first- or second-generation. They would have experienced or will soon experience a transition.
Over time, ownership will only become more fragmented as there will be more family members in the next generation. With such eventuality, having a structured, formalised succession plan in the family business will help to deflect potential conflicts and ensure cohesion in the family and the business.
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