The transition of managerial responsibility in family business succession

Management responsibility transition in family business succession flows from the conclusions of the strategy review of the business by the family, their advisers, and (where applicable) with key non-family managers. Management responsibility transition involves transition of management, leadership and resources including knowledge and networks. Management succession takes time in family business succession as incoming family members may need education and work experience to get to the position of succession. That said, in overextended management transitions the successor may feel constrained. Alternatively, in that scenario, they may feel the price for buying the departing family member’s equity is fuelled significantly by their own ideas and efforts!

The management succession should also consider the leadership of the different functions of the business so that a well-functioning leadership team emerge from the process and not just a family firm successor. This broader planning will engender confidence in the succession within the business and outside it (whether with stakeholders or the market). In doing so it is important to be explicit about who does what and when in the management succession process. This allows existing management to steadily reduce responsibility as new management enter and increase their responsibility.

It may be that management transition process takes 5-8 years. In a large organization it may take longer if the successor joins in a junior position and works their way up. There are pros and cons to entry at the top and entry at the bottom of a business. Entry at the bottom allows successors to see more of the business, but it is questionable that they will experience their roles as regular employees even with the best of intentions in planning the process; employees may be on their guard when working with the son or daughter of the boss. Entry at the top risks undeserving candidates slipping into positions of great responsibility without the preparation which risks the prospects for jobs, wealth and general welfare. The merits of bottom up progression with a path of relevant experience in an outside business followed by joining the family business may be a compromise route to developing a good successor if circumstances permit it.

In the management transition process the outgoing family manager moves from leader to delegator to consultant as the new generation move into position and gain experience. As the outgoing family member has the power in the business, it is imperative that they realise the need for this change in their role. In parallel the successor moves from helper to manager to leader as the outgoing family member steps back.

Successors need to be identified, suitably motivated, supported and trained. Be realistic if an immediate family member cannot be identified for succession. In that event, consider whether wider family or non-family managers may be suitable. It may be family ownership can continue alongside senior management from one or both of these sources, perhaps involving part ownership by these management sources in due course.

Whether the successor is a family member or not, the decision to be a successor must be their own so the candidate(s) must be given the space for that decision to be made their own. An unwilling successor can suffer mental frustration and torment, or worse, and the business receives a leader that is less enthused which will probably have business performance implications. This autonomous decision is a strong foundation for the successor(s) to take on responsibility with motivation and thus to gain competence. Supportive conduct within the business will accelerate this process.

Family business management transition takes time and planning. The successor needs to be willing and able. It should be tied to a strategic plan and be part of the wider leadership development programme of the business. A key propellent of success of the whole process will be the outgoing family leader’s awareness of the need to initiate and facilitate the steps of the process. The outgoing family leader’s awareness provides space, opportunity and guidance for successors to become prepared for succession. Nexa law is able to assist family business owners and successors with the employment law dimensions of management succession in family businesses. We look forward to discussing your business needs with us.

For more information please contact Henry Clarke using henry.clarke@nexa.law