Succession Planning in Family Business

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Written by Michael Warrington, Chief Executive Officer  AX Group

In Malta, most local businesses are family-owned and managed. Many of the businesses are passed from one generation to the next. A relatively small percentage of businesses make a successful transition to the next generation. The reasons why so few transitions succeed are varied. Internal family differences often play a major role in the demise of successful businesses.

Finding the right balance between the business needs and the family perspective is never an easy task. The family interactions and motivations are normally very different from those of the business. The challenge is to balance the interests and conflicting goals of family and business.

Although many business people talk of succession planning, in practice there is a significant difference between what the owner/manager perceives and what needs to be done in reality to ensure the continued success of the business and the maintenance of a healthy family rapport.

Succession planning needs to commence at a very early stage in a business-owning family. Children are naturally curious about their parent’s work. Many founders of successful family businesses find it challenging to balance the family needs and the business demands. The consequence is that one or the other gets more attention at one time or another. These compromises are then the root cause of the long term issues that undermine family unity and ultimately the business.

There is no universal route to success. Every family needs to discern and discover the path to adopt to optimise the probability of the business surviving a transition from one generation to the next.

Here are some suggestions on strategies that should increase the probability of a successful transition.

 

1. Freedom of choice

Every parent will tell you that each of their children is different and unique. Much as the founder of a business may wish that their children will follow in their footsteps and do a good job of it, it is not a given. From an early age, children need to be allowed to understand that they are free to determine their life’s journey, that success is not only determined by them being active in a family business nor that there is an automatic place for them in the business.

2. Family and corporate values

Strong businesses are those that adopt family values and apply them within the organisation. These values guide the employees and stakeholders who interact with the company on what can and cannot be done. Businesses then set the tone on the work ethic, loyalty, honesty and integrity expected from both the family members and employees.

 

3. Meritocracy

Businesses tend to do well when authority and responsibility are determined on the basis of merit. Hard as it may be for family members to accept, it is in the long term interest of the family as much as the business that people are appointed to positions of authority on the basis of their competence and skill.

 

4. Setting the rules – The family charter.

Developing a family charter which is a document that sets out some key principles that each family member should understand and follow is also an important milestone for success. The charter would reflect the family values and set rules on everything from ownership rights, active participation in running the business and passive ownership, appointments to key roles within the business, engagement and participation of spouses and children in the business, compensation and drawings from the business, the resolution of disputes and non-competition with the business interests.

Most family-owned companies start off with a single founder or a founding couple. The founders are usually ambition-driven, passionate and very focused on the success of the business. They are usually very hopeful that their offspring would be inspired by the business and choosing to stay in it would be a natural choice.

The hardest part of the transition process is letting go. The founders are often reluctant to let control out of their hands. The ease with which they can do so is determined in a process very similar to when their children took their first steps to start walking – the initial interest, learning the ropes, building confidence, failing and trying again – with the firm but gentle hand of the parents to guide the children along.

The Pitfalls of Part-Time Work

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Written by Denise Micallef Xuereb, Construction & Development Director AX Group 

I believe in women and feel strongly about their entrepreneurial skill sets. As a company, we have always promoted women, even in high ranking positions. Locally, however, I feel that, although the situation is constantly improving there is still a long way to go. The figures still highlight poor female representation on boards and in leadership positions. Now the reasons for this are many but one element I can see is that many companies offer women part-time work instead of allowing women to work full-time and on flexible terms. Part-time work will only set them back and, potentially, will not allow them to achieve the same goals as their male peers. Now obviously that does not go with every position and with every role but that is very a probable cause why we don’t see as much female representation in higher corporate positions. They are just not around for the promotions! 😀

Another reason is also a question of mentality, I call it sometimes “self-limitation.” There are many women I know that are insecure about their own abilities, clouding themselves with a lot of doubt, questioning their abilities to venture out to be able to arrive at those top positions. Sometimes it’s just a simple thing of asking for what one deserves. This, coupled with social pressure coming from extended families or friends to quit jobs when they marry or have kids, or even possible guilt feelings when it comes to the family-work balancing act. Yet, these feelings of self-doubt need to be tempered with the realisation that women are capable and have much to offer. Women are born organisers and multitaskers. At least all women I know are! ☺️ Indeed, women should be on boards knowing they have earned the right to be on that board just like anyone else.

Quotas may be counterproductive since they might create even more insecurity. Women should be on boards because they want to and are encouraged to do so. If I were a woman on a board that had a quota imposed on it, I could question why I really am on that board. Am I there because I really deserve to be there or am I there to satisfy the requirement? This might create even more insecurity.

On the other hand, businesses that adopt more family-friendly practices and allow for continued awareness will encourage other women who are still contemplating how they can succeed at managing their work-life balance. Part of this is the realisation – across the board – that both parents need and should be able to opt to go to work. The moment we see husbands going to parents day, husbands (partners) also asking for reduced hours or demanding paternity leave I can see the mentalities shifting even further than today.

We should be able to decide for ourselves what we want in our do in lives. I am proud to be surrounded by women in my office. So, what we need is for policies to catch up to really make it easier for women to get to the top.