Family business succession is the task of transitioning the management and ownership of the business to the next generation of family members. The transition may also include family holdings as part of the process. Family members naturally play a leading role in both the management and ownership succession. In relation, the effective integration and management of the family component will have a determining effect on the success of the succession process.
Succession planning is a process, not an event, and it is never too soon to start talking about what will happen to the family business in case of an eventuality. Although this is the sensible approach to take when considering the future of a family business, irrespective of whatever stage of life the founder may be. Change is hard, and these transitions often require change on many different levels. A parent-child relationship may develop into a manager-subordinate relationship that then needs to develop into a partnership. It is challenging to manage those changes and make those distinctions between family and business issues.
Some family businesses successfully manage their management and ownership succession plans while preserving family and business harmony. There is no reason more family businesses cannot achieve similar outcomes. It is with this in mind that Strathmore University Business School (SBS) held a Family Business Day attended by individuals from different industries representing their family-run businesses. The objective of the day: to bring the topic of succession to light and to inform participants of succession transition services and methods available to them.
Dr. Edward Mungai, Deputy Vice-Chancellor Planning and Development at Strathmore University, led the discussions. He emphasized on the importance of listing family-owned businesses with the National Securities Exchange (NSE) under their new ‘ibuka’ program. Dr. Mungai went on to host a panel discussion where they explained the importance of a succession plan and how one can ease their family into the critical conversation.
“How do you plan for succession when your children are still young ?” asked a participant. The panel advised that “one is to open a trust fund and appoint professional trustees, there you can plan for all the child’s needs, i.e., education, health, and even your retirement.” Those who were battling with issues of entitlement in the family-run business were advised to implement a family business constitution. It will demand that the company law is applied, and the company vision reiterated to the parties involved.
However, in the unlikely event of a divorce, the two parties are advised to carry on with the business, buy out either individual or sell the entire company, and divide the funds. Ms. Ann, a panelist, stated that “the foundation of every family-owned business is the marriage; thus, we need to ensure that even during pre-marital counseling, it is a topic of discussion.” Participants were encouraged to further the discussion by joining the Family Business Executive Programme where one can gain additional understanding of the strategy, risk, and dynamics of a family run business. For details on the programme, click here.