Succession Planning in Family Businesses

Succession planning is the process of pinpointing key needs for leadership and intellectual talent throughout the organisation over time and preparing individuals for present and future work responsibilities especially when there is a change in the higher authority or senior management personnel. Generally, family-owned business owners defer their succession planning simply because they do not wish to ponder about their untimely retirement, disability or even demise. Although, business succession planning must be given necessary emphasis in all family owned business.

Important Aspects

Let’s consider some important aspects to better understand the process of succession planning in family businesses :-

  • Succession is a Procedure and not an Occurrence

Instead of considering succession as a one-time occurrence which takes place on a set day, think of it as an ongoing procedure which takes place over an extended duration of time. Parents should start laying the foundation for succession while their kids are young. You can incorporate this in the way you communicate about business at home. This will help the children in maintaining a rational perception about the family business.

  • Offer the Business as a Choice and not a Liability

Parents aspire that their kids would one day want to follow their lead and join the family business. However, do not present this opportunity as a liability which they must take up. Offer it as an opportunity to your children.

  • Employ them in a Current Job

It is essential that your daughter or son is employed in a meaningful and specified job. It will aid them in understanding the concept of salary structure and related expectations. It will also provide clarity to the other staff in comprehending where your child comes in the business hierarchy. In this manner, they can evaluate their growth in the company.

  • Educating about the Basics

One of the most significant attributes a parent generation can offer to the next generation is a strong comprehension of the historical, cultural and strategic foundations of their business. It is very important for the children to be mindful of the fundamental pillars which holds the business together.

  • Timely Family Events

An honest communication with all family members is important. At times, you might have to plan for it, and sometimes productive communication takes place in the moment. During these personal events, ensure to discuss all vital matters at stake.

Read more: Strategising for Effective Succession Planning

 Balancing Personal & Professional Relationships

In matters of family businesses, it is essential to strike a balance between the personal and professional life for smooth streamlining of all business processes. Following are some virtues which upon practicing can prove beneficial :-

  • Begin Early

In general, most organisations do not have the ideal candidate ready in the company. Planning beforehand offers the required time for people to grow their skills and be well prepared to take up a higher level position. It also develops the opportunity for external leaders to build trust in the family-owned group. If you groom a successor from the family, ensure that they work their way to the top.

  • Be Vocal on Significant Matters in the Family and the Business

The dynamics of a family business are not always simple, which is why it is important to build an atmosphere where all opinions are heard and to nurture an honest discussion related to the future of the organisation. These conversations will facilitate solidarity in the family and the business in the long run.

  • Predetermine the Rights and Responsibilities of all Stakeholders

Establishing the rights of the ownership group, existing CEO, and the board will offer the family articulation and at the same time ensuring transparency in the decision-making system. It also makes sure that you have the aptly qualified individuals that can be entrusted with the future of the family business performance.

  • Maintain Active Communication with the Ownership Group

Inform the family about the timeline for succession, explaining them the role of the board, and that the process is being handled professionally, with the objective to establish the ideal leader for the business. While the assessment of candidates in the process is not apt to share with the family, offering them a sense that a fair and objective method is being followed will elevate the acceptance of the consequence.

An Interesting Read: Guide to Register Labuan Private Foundation

Emergency Planning

It should be your priority to avoid this situation in the first place, although if this event comes up, ensure to keep these considerations in mind for your emergency succession plan :-

The plan must be recorded in a written format and also verbally communicated to all executives and the board of directors, to ensure complete transparency about the occurrence in case of an unexpected event.

It is essential that there is transparency about who is going to lead the company. There should be no disagreement or any conflicts during the crisis time. Preferably, one person must be endued with the ultimate decision-making power. If you have a board of directors, the emergency CEO must report to and request advice and council from the board.

There must be a well-executed course of communication with employees and consumers in case an unexpected occurrence takes place. Bear in mind who must deliver these communications, and what the messages are going to be, specifically for consumers. The more assured employees and consumers are, the better the business can function smoothly.

From a broader perspective, take into account how a permanent shift will happen. If you have a board, possibly the board and the CEO/owner’s spouse are given control to determine a time table for establishing the permanent CEO or other changes in the organisation. If there is no board, the owner’s spouse must have a clear idea on whom they can entrust to aid in making decisions related to the business.

Labuan Private Foundation – For Business Succession

Labuan Private Foundation is the ideal vehicle to hold assets with the purpose of managing these assets for the benefit of a class of persons on a contractual basis. It is a registered corporate body with a separate legal entity from its managers (i.e. its officers and council) and is commonly used for private wealth management, business succession and asset preservation.

Significance of Succession Planning

  • Avoid probate formalities – Distribute assets to heirs efficiently without reducing the cost, delay and publicity of probate court
  • Can secure your assets from creditors or other claimants if set up properly
  • Regulates how a beneficiary receives assets
  • Transferring family wealth and values
  • Family expansion and multiple families
  • Offering it to charity
  • Cross-border assets and beneficiaries
  • Tax planning and mitigation in some jurisdictions

Finding out how to set up a Labuan Private Foundation for your business succession and wealth planning, reach out to QX Trust at CONTACT US or consultant@qx-trust.com and book a complimentary session to understand better about the process and any other related matters.