Family Business and Succession Planning

Dr. Yong WangReader in Family Business

& EntrepreneurshipWolverhampton University

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80

85

90

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0 50 100 150

UK

Spain

EU

Sweden

US

Italy

Proportion of OECD Firms That are Family-Run in Percentage

- Upton and Petty (2000)

Over 85% of EU/US businesses are family run

Family Business DynastyTOYOTA, FORD, HONDA, FIAT

MORISSONS, WAL MART, SAINSBURYS, WOOLWORTH

L’OREAL, ESTEE LAUDER

IKEA

AMAZON

MARS, REMY COINTREAU

HOSHI HOTELS OF Japan: 718AD, 46th Generation

      

               

               

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degree of ownership and management by family members

e.g. ‘A company in which more than 50 percent of the voting shares are controlled by one family, and/or a single family group effectively controls the firm, and/or a significant proportion of the firm’s senior management is members from the same family’

- Leach et al. (1990)

inter-dependent subsystems

e.g. ‘The sub-systems in the family firm system include (i) the business as an entity, (ii) the family as an entity, (iii) the founder as an entity, and (iv) such linking organisations as the board of directors’

- Beckhard and Dyer (1983)

What is family business?

generational transfer

e.g. ‘A business that will be passed on for the family’s next generation to manage and control’.

- Ward (1987)

multiple conditions (a combination of three former dimensions)

e.g. ‘Family ownership of more than 50% of the business in private firms or more than 10% of the stock in public companies; more than one family member works in the business or the owner anticipates passing the business to the next generation of family members or the owner identifies the firm as a family business …’

- Astrachan and Kolenko (1994)

What is family business?

70% Failure

30% Continuation

Failure rate from 1st to 2nd generation

Initial 70% Failure

10% Continued

20% Lost 2nd Gen

Failure rate from 2nd to 3rd generation

Business Survival –Ward (1987)

• Manufacturers • 200• 1924-1984

80% failures • 33%: 0-29 years• 35% 30-59 years • 32% 60+ years

Survival 20%• 5% sold-out• 2% flotation• 13% familiar

• 7% -declining• 3% - stable• 3% - growing

Why failure to transfer to the young generation?

• Lack of a clear, well-defined succession plan

• Failure to address the issue of who will run the business• Owner-manager unwilling to relinquish • Reluctance of offspring to take over • Non-family managers unwilling to assist successors • ……………………

Succession Options

Sell part of the business

Sell the entire business

Do nothing

Liquidate the business

Appoint a family member

Family Business Strategy – the likely routes

To pass on to the next generation within the family

51.5%

To partially exit, realise wealth and become less active

44.9%

To sell the business (trade sale) 44.1%To float the business and realise wealth 15.3%To liquidate the business 3.8%

SandAire 2001 Survey - MBS

Succession Planning

• Business plan• Family plan • Tax plan• Financial plan ……………….

Picking the Successor • The rules

– The oldest son principle– The best candidate principle

• Sifting process– Leadership traits – Start-up venturing– Organise assignments– Offer platforms

• Interim leadership• Declaration ASAP

Mentoring the Successor • Mentor

– Senior manager– Offer offspring principles of management – Offer offspring different working opportunities

• Offspring – New ventures boosting multi-managerial talent– Playing leading not shadowing roles – Leadership and entrepreneurial spirit development – A project per sibling to avoid rivalry

Succession viewed as a processPredecessor

Sole Operator Monarch Overseer/Delegator Consultant

No Role Helper Manager Leader/Chief Decision Maker

Next-Generation Family Member

The Succession Process: Mutual Role Adjustment between Predecessor and Next Generation Family Member(s)

Departure style of founders or CEOs in family businesses

Monarchs: - do not leave until they are forced out or die. Generals: - leave passively while planning a comeback to rescue the company from an incapable successor. Governors: - rule for a term and then pursue other organisations. Ambassadors: - leave willingly and serve as advisors. -Sonnenfeld and Spence (1989)

Tips for Succession Planning• Commence to plan at an early stage

• Offer opportunities for capability development

• Seek professional advice

• Build consensus within the family and the business

• Clarify the transition process

-International Finance Corporation

Thank You!

Any questions?