The Business Times - 31 May 2011
COMMENTARY
Keeping the flame alive
A strong sense of purpose is needed for successful succession planning at Asian family businesses
By ROGER LOO AND JOSEPHINE TAM
SUCCESSION planning is often deemed a taboo topic in Asian family businesses. Not only is it associated with dreaded words like death and disability of the incumbent family business leader, it often triggers sibling rivalry and jealousy. The recent case of casino billionaire Stanley Ho's succession planning in Macau which went into disarray could deter incumbent family business leaders from considering this move as part of the strategic vision and planning for the organisation.
Worldwide, only one-third of family businesses successfully make the transition from one generation to the next, according to studies by BDO Australia. Other studies by BDO Australia even suggest that only around 5 per cent of family businesses can still create shareholder value beyond the third generation. The 'succession candle's flame' needs to be passed on, but when exactly is a favourable time for such an exercise?
BDO's research in Europe and Australia has shown that by the time the incumbent leader reaches the age of 65, if there is no succession plan in the pipeline, the generational transfer will likely not proceed in an orderly manner.
Among the many reasons that incumbent leaders are not willing to initiate a planned succession process is deciding between two or more capable siblings. This is often cited as the top rationale for not discussing succession planning. Incumbent leaders find it difficult to choose one over the other as this may hurt the family members - a difficult and emotion-laden problem.
A situation where there is no capable successor in sight creates an additional dilemma to the incumbent business leader. Forces operating against succession planning are not just confined to those involving incumbent leaders.
Families are another source of pressure. The founder's spouse is usually reluctant to welcome and encourage a partner's move into retirement. He or she, too, may not relish the prospect of giving up many key roles played in and around the family business. A founder's spouse would have had direct involvement in the business; the company would have been a centre of activity and a significant part of the spouse's social identity.
Asian family taboos also play a role. Cultural norms that govern Asian family behaviour discourage discussion between parents and the next generation about the family's future after the parents' death. This is particularly sensitive for issues relating to financial matters and allocating funds.
Succession planning involves an open discussion of precisely these topics and is usually avoided even in well-adjusted families. Doing nothing about the succession is often disastrous for family businesses. Yet, many incumbent leaders and their family members are reluctant to give up control. They prefer to live with ambiguity, choosing to avoid the situation.
Employees can also present obstacles to succession, even though the prosperity and continuity of the family business are in their best interests. For many employees, especially senior managers, their close personal relationships with the founder constitute the most important benefit of working for the family business. Replacement of the founder with a successor, viewed as inexperienced and likely to make sweeping changes, is seen by employees as a threat to their job satisfaction and security.
External worries about change also play a role. External to the firm, important customers are likely to be resistant to change and reluctant to trust a new face. Similarly, the unwillingness of other entrepreneurs - the incumbent leader's peer group - to deal with their peer's successors reinforces the incumbent leaders' bias against planned management transition.
Incumbent family business leaders thus have to face a range of complex and interrelated resistance - psychological, emotional, family and employee pressures. It is hardly surprising that so few family business founders are willing and able to organise effective succession planning.
There is no simple way for a transfer from one generation to the next. A strong sense of purpose is needed for successful succession planning. There are many decisions the incumbent leader would have to make in the course of succession planning and the willingness and intention of the incumbent leader to plan for their succession is often a decisive factor determining whether the exercise succeeds or fails.
We provide an analogy of family business succession planning and flying a plane: There is not much danger when the plane is in the third hour of flight, but at take-off and landing the aircraft is much more vulnerable to an accident. The point of succession is very much like landing and taking off again. It presents a radically greater threat of danger than is posed by any of the other periods in the history of a family business.
The writers are director and consultant respectively of strategic advisory services at BDO Consultants Pte Ltd. They are accredited family business advisers with Family Business Australia
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