3 minute read 10 May 2019
4 ways the largest family businesses undertake successful successions

4 ways the largest family businesses undertake successful successions

By

Carrie Hall

EY Americas Family Business Leader

Trusted advisor to entrepreneurial family businesses looking to create sustainable growth and competitive advantage across generations. Loves travel and wine, particularly at the same time.

3 minute read 10 May 2019
Related topics Family business Growth

Succession planning is not an easy, straightforward process. It’s vital to prepare the best possible environment for succession to succeed.

Succession is a hot topic for family business leaders. Around the time of leadership succession, emotions often flare, relationships in family and work undergo stressful changes, and the success – or failure – of an effective transition can impact the family and the business for years.

We surveyed some of the the largest, longest-lasting family businesses in the world to discover what they do to produce successful successions generation after generation. Analyzing our survey data, we identified these four common elements that help lay the groundwork for new leadership long before succession occurs.

1 Clearly define who is responsible for succession

Nearly all (88%) of the family businesses in our sample have clearly identified who is responsible for succession. This implies that they also have clear processes in place to handle leadership transitions, and they set them up well in advance.

Interestingly, in emerging economies, the board is even more likely to have responsibility for succession (51% emerging vs. 41% developed), while CEOs tend to be given the responsibility more often in developed economies than emerging (24% developed vs. 18% emerging).

2 Focus on next-generation preparation — but not necessarily outside work experience

It’s been well-established that taking time to prepare the next generation is absolutely vital for a smooth succession. Younger generations need an understanding of the family business starting early by gaining education about business and developing a sense of stewardship and connection to the family business.

However, it turns out that there is no relationship between board responsibility for succession and the number of years of outside experience required for leadership. This suggests that boards do not think outside work experience is a key to effective succession.

3 Nurture an entrepreneurial culture

An entrepreneurial culture is a measure of how easy it is to take entrepreneurial action in a family business. In some ways, it defines the company’s ability to change, grow and adapt to its environment — which is key to having a successful succession (and to attracting top talent).

Family businesses in all parts of the world report a fairly robust entrepreneurial climate in their organizations. However, the emerging economies (with the exceptions of China and India) report a less entrepreneurial culture than the US and other developed economies. In every country, growth targets and entrepreneurial culture are correlated with how easily companies can attract top talent.

4 Work to attract top talent

Family businesses have an advantage here – in many markets, merely being a family business appears to be attractive to high performers.

Rather than downplaying their family business nature when looking to attract talent, firms should advertise it widely, particularly emphasizing the attributes that make family businesses unique and desirable, such as:

  • Flexibility
  • Adaptability
  • Speed of change
  • A human approach
  • Emphasis on long-term relationships
  • Desire to take a very long-term view of people and investments

After reviewing the four dimensions outlined here, you might not have a plan, but you will have the right mindset: focus on the future. This is where your process begins.

There’s no avoiding succession; embrace it instead

A good succession is one that sets business and the family on a productive course for the long term. We believe the family businesses we researched shine a light on how to lay the groundwork for a successful succession. Flexible decision-making, defined processes, family cohesion, strong values and an ethos of continuous improvement are the key ingredients in achieving a successful succession, in building long-term succession competence, and, of course, in being a successful family business.

Summary

In this report we consider four elements employed by family businesses that help lead to successful successions generation after generation.

About this article

By

Carrie Hall

EY Americas Family Business Leader

Trusted advisor to entrepreneurial family businesses looking to create sustainable growth and competitive advantage across generations. Loves travel and wine, particularly at the same time.

Related topics Family business Growth