On 15 May 2024, Singapore welcomed our fourth new Prime Minister Mr Lawrence Wong, following the voluntary step-down of Mr Lee Hsien Loong, who led the nation for 20 years. This transition, significant for the nation’s governance, also underscores an important lesson in succession planning – particularly for Asian family businesses that often do not prioritise it.
Having a business succession plan means identifying and developing future leaders to take over key roles and even passing on ownership of the business. Despite being considered taboo in some cases, there are many reasons why business owners should be planning it early, even if they do not intend to relinquish control of their business anytime soon.
#1 Ensure Business Continuity
Like the People’s Action Party (PAP), which implemented a clear succession plan years in advance, large corporations such as US conglomerate Berkshire Hathaway have also prepared for leadership transitions.
In 2021, Berkshire Hathaway, led by famed investor Warren Buffett, named Greg Abel and Ajit Jain as successors, granting them greater authority and oversight of business operations even as its two top leaders continued to run the company. This forward planning enabled the company to continue its operations without spooking shareholder confidence after the passing of its key executive, Charlie Munger in 2023.
A well-prepared succession plan ensures business continuity in the event that the founder can no longer lead, protecting stakeholders’ interests.
Read Also: What Happens When A Business Owner Passes On?
#2 Select From A Wider Pool Of Talent
Founders often look internally for successors to carry on the business and their legacy. However, their preferred candidates, such as family members or long-time employees, may not always be the best fit for leading the company’s next growth phase.
An early succession plan allows the company to broaden its search beyond the immediate pool of talent, considering external candidates who may possess the necessary skills and experience. It also gives time for external candidates to integrate into the company’s culture and values, ensuring a smoother transition.
Additionally, it also gives more time to assess and recalibrate the chosen successor, who may due to unforeseen circumstances be unwilling to take on the mantle at a later stage. This was the case when Deputy Prime Minister, Heng Swee Keat was initially choose to be the next PM, but due to his health reasons withdrew his candidacy. Due to the advance planning, the PAP had more time to select a suitable leader from its pool of candidates that had the majority support of its party members.
#3 Preserve Family Legacy
When a founder passes away without clear guidance on asset distribution, disputes among beneficiaries can lead to unfavourable splitting of the business.
In Singapore, assets without a Will are distributed according to the Intestate Succession Act, or for Muslims, under Islamic Inheritance Law according to the Administration of Muslim Law Act. By dividing the assets according to these frameworks, it may result in a less optimal outcome that may not be aligned with the founder’s intent. In the worst-case scenario, the business’s legacy may end with the founder’s passing.
However, if the succession planning is done ahead of the founder’s passing or retirement, they could remain on the executive board as an advisor to the new management. This approach ensures that the new leadership receives guidance in line with the company’s vision and values. For example, Mr Lee, after stepping down as Prime Minister, continues to hold a key appointment in the PAP as Senior Minister. While he may not have an active say on matters like in the past, he could still give his advice on issues that the new leadership may feel uncertain about handling.
#4 Passing The Torch On
Beyond passing on the management of the business to a successor, a succession plan can also be an exit strategy, particularly for sole proprietors involved in skills-based trade. These include roles such as plumbers, electricians, craftsmen, and even hawkers, where the owners have honed unique skills over the years.
Instead of the trade dying with them as in many of the cases where the younger family members are unwilling to carry on the trade, business owners could be more willing to pass on the torch to the younger generation by mentoring them.
In the case of hawkers, there’s the Hawkers Succession Scheme (HSS) that helps veteran hawkers pass on their skills, recipes, and hawker stalls to aspiring hawkers. These give owners another outlet to think about succession planning from the perspective of transferring their knowledge to the next generation.
Read Also: Passing The Torch: How Can Family Businesses Have A Proper Succession Plan
Learning To Let Go
Business owners, especially family-run enterprises, who have worked long and hard may find stepping down and passing control to the next generation daunting. This hesitation can delay their decision on succession planning, as they may wish to maintain control of their businesses for as long as they live. However, this approach can have unintended consequences for the future of the business. The next leader might not fully embody the company’s vision and values, nor possess the necessary experience and ability to run it effectively.
Implementing an early succession plan provides clarity and assurance to stakeholders, allowing them more time to evaluate the successor’s capabilities. It also allows the founder to transition into a mentorship role, guiding the chosen successor to lead the company forward. For the broader economy, the continuity of well-managed businesses is beneficial, supporting financial stability and growth.
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