To remain successful for multiple generations, it's critical that family businesses have a solid succession plan in place.
For a smooth leadership transition that allows for continued growth and innovation, family businesses need to begin laying the groundwork for the succession process long before it is needed, according to a new study from EY (an assurance, tax, transaction and advisory services provider) and Kennesaw State University.
To determine the best succession strategies, researchers studied some of the world's longest-lasting family businesses. They surveyed 525 family businesses, including 25 of the largest family businesses in each of the 21 top global markets, about their approaches to succession planning.
"We believe organizations can learn a tremendous amount by understanding the way family businesses approach succession," Carrie Hall, EY Americas family business leader, said in a statement.
Based on their research, the study's authors outlined the several key practices that family businesses with successful succession efforts have in common:
- Put someone in charge. The research revealed that 88 percent of long-running family businesses have designated someone specific as the person responsible for the company's succession plans. The study's authors said having someone in charge implies these companies have a well-thought-out plan for handling leadership transition well before it actually takes place.
- Focus on the next generation. It's imperative that those currently in charge of family businesses spend time preparing the next generation of leaders. The study discovered that family businesses with the most succession experience tend to place a greater emphasis on educating and preparing the next generation. Additionally, the research showed that the more family members there were who understood how the business was run, the smoother their leadership transition went.
- Create an entrepreneurial culture. Future leaders need to be engrained in a company culture that promotes the ability to change, grow and adapt to its environment. These traits are critical to successful successions, according to the research. The study found that most of the companies surveyed understood how important it is to have a culture that promotes informed risk taking, agile decision making and rapid market response. The study's authors said that excelling in these areas can give family businesses an edge over their publicly held competitors.
- Bring in outside talent. Successful family businesses don't always rely on family members to be future leaders. The researchers said the importance of great outside employees is often overlooked. Bringing in high-quality performers and developing them into leaders gives family business more options moving forward, according to the study. The researchers believe family businesses have a number of traits that give them an advantage when recruiting top talent, including flexibility, adaptability, speed of change, a human approach, an emphasis on long-term relationships, and a desire to take a very-long-term view of people and investments.
"How long-lived family businesses approach succession planning can serve as a model for other family businesses as well as companies that aspire to maintain an entrepreneurial spirit, innovate and grow consistently through leadership changes," said Joe Astrachan, a professor of management and entrepreneurship at Kennesaw State University.
In addition to their succession strategies, the longest-running family businesses have a number of other strategies in common, including the following:
- 70 percent are considering a woman for their next CEO.
- 90 percent have a board of directors.
- 90 percent have regular family or shareholder meetings to discuss business issues.
- 76 percent refer to themselves as a family business in their branding.
- 81 percent engage in philanthropic activities.
Besides long-running family businesses in the United States, researchers also surveyed businesses in Australia, Belgium, Brazil, Canada, China, France, Germany, Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), India, Indonesia, Italy, Japan, Mexico, the Netherlands, Russia, South Korea, Spain, Switzerland, Turkey and the United Kingdom as part of the study.