Family owned businesses account for around 88% of the UK’s privately owned companies according to 2018 data but how many of those businesses transcend generations is another matter.
Succession planning within organisations is of significant importance. However, from experience of working with many organisations who have handed over power to sons and daughters, it rarely runs smoothly. There are many complex reasons for this.
Business succession is the transfer of ownership of a business to family, a trade buyer or management team. For some of us when we hear the term ‘Succession’ we may immediately think of the HBO TV drama ‘Succession’. In its 4 seasons it has garnered 48 Emmy nominations, 13 wins and many fans.
The series tells the ongoing story of the Roy family who own Waystar RoyCo, a global media and entertainment conglomerate. It follows their fight for control of the company as Logan Roy the father and CEO suffers health issues. It is fraught with drama, fall outs and unease.
Whilst it is a TV programme which must always sensationalise things and add drama for entertainment’s sake, there are many parallels in the real life difficulties of succession within business. It more often than not, ends in dispute. Statistics back this up with around 30% of family businesses making it to the second generation. From then on it halves to 10-15% making it to the third generation, and a staggeringly low 3-5% making it to the fourth.
I worked with one third generation family holiday park where handing it down completely failed. It split the family apart. The problem stemmed from a poor relationship between father and son. The mother left the family home when the children were young and the father took sole custody. He was quite often absent due to running and building the business.
When the time came for the son to take over the business there was still a great deal of childhood resentment from the son towards the father due to his absence. The son had also not really shown an interest in the business before. This resentment and lack of real company knowledge meant that they had a challenging relationship at the time of handover. The son felt controlled and unable to put forward his ideas for progressing the business. The father was adamant that the old way of working remained.
Despite much negotiation the succession plan fell through as the son lost interest in a business he never really wanted in the first place. I worked with the father to sell and exit the business to a third party rather than hand it down to his son. The father and son haven’t spoken since.
A business is usually started by a CEO or entrepreneur as a passion business. There is very often the idea that it will remain in the family and become everyone’s passion. Unfortunately many children do not share their parents’ passion and see the business as either a poison chalice or a licence to print (and sometimes burn) money.
When it comes to succession planning, problems usually occur when the parent steps down but doesn’t step out. They give their adult son or daughter control of the business but not actual ownership. It is therefore still a parent-child relationship in a business environment, which really doesn’t work. Even with business successions that work there is always an element of retaining control which provides a sticking point between the two parties. The older generation does not want to let go of the reins.
Their mantra is often that they worked hard to make the business a success by doing X,Y and Z and that should be how it remains. The younger generation often comes from a more digital background and wants to move the business forward using the digital world rather than the industrial world.
Successful business succession within a family can happen but they require careful planning and execution. They also rely on the existing strength of the relationship between father/mother and son/daughter.
The succession planning process should be started well in advance of the actual transition with the potential family member taking over the business identified years earlier. The hope is that they will have undergone training and development to prepare them.
One of the successful successions I worked on saw the son having worked in the family business from school and during that time he had taken on different roles within the business from the bottom to the top and understood everything about the workings of it.
Of course it is also imperative that a business succession has external help from impartial advisors such as lawyers, accountants, and business consultants, who specialise in family business succession to help navigate complex legal, financial, and emotional aspects of the process.
I still work with a second generation business in Essex called ‘Brentwood Communications’ run by James Miller who took over the business from his father in 2008.
This is very much an example of a successful succession. He has taken the original 6 man business with a £300,000 turnover to another level. Brentwood Communications has now acquired four other businesses within its portfolio. James says he was lucky that his Dad led by example and despite the business being his baby, ultimately he understood that he had to take a step back and let James learn how to run the business his way. There were times when they clashed, not quite as badly as in succession - James says his Dad was nowhere near as hard as the character Logan Roy but there were some similarities in terms of control.
James didn’t really ever set out to run the business but neither of his siblings were interested and coming in to work in the IT part of the business ignited his passion for the business as a whole.
Successful business succession requires a delicate balance between business and family considerations. It’s crucial to maintain open lines of communication and approach the process with patience, understanding, and a long-term perspective.
It can be done and if 88% of the UK’s private companies are family owned then we should hope it starts being done properly and with modern day practices taken into consideration.
Peter Boolkah is a business coach and advisor who has over 20 years experience helping business transition, including succession planning and the handing over of the organisation to family members or helping owners to exit their businesses.
