For generations family businesses have been the backbone of the economy, supporting job creation, innovation and enterprise across the UK. However, when the time comes for the current leadership team to hand on the baton to the next, the decision of whether to pass down responsibility to a family member or to appoint outside expertise can be fraught with uncertainty. Despite its vital importance in ensuring an organisation’s longevity and stability, research by PwC Global suggests that a staggering 43 per cent of family businesses do not have a succession plan in place. It’s vital that contingencies are made and options are assessed early, ideally acknowledging the possibility of family control, external counsel and potential sale, to accurately select the most beneficial outcome.
Many family business owners will have put years of relentless work and commitment into their company, and as such, the protection of employees, revenue and values is an utmost priority. The shifting nature of personal and business circumstances dictates the need to always have a ‘plan b’. Remember, although an individual may have been earmarked early as a successor, a simple change in personal situation or ill health could unfortunately render these plans void. Similarly, a sudden shift in the markets could change the abilities or previous experience required to successfully run the business – no succession plan is ever set in stone.
Keeping it in the family
In some cases, a business owner may have complete confidence in a son, daughter or other family member’s ability to take over the organisation in their stead, in other cases, suitability may be less certain. In both eventualities, allowing this individual to get to know the business, its markets and how it operates before taking the helm is of huge importance. Not only does this allow the individual to earn the respect of employees, but ensures they are in tune with the challenges and opportunities the business faces, so they can meaningfully commit to a leadership role should it be offered. Giving successors the opportunity to prove themselves and win the buy-in of the wider team is hugely valuable.
An example of timely succession planning in action comes from serial entrepreneur and business magnate Sir James Dyson. In 2015, Dyson lined up his son Jake as successor by purchasing his energy efficient lighting business Jake Dyson Products, which was effectively folded back into the Dyson group, with Jake’s innovations being used in future product development – a move backed by the Dyson board. Jake and younger sibling Sam have also been non-executive board directors for a number of years, allowing long-term oversight of financials, challenges and operations.
When a family member does become CEO, a transition period alongside the outgoing leadership team can prove massively beneficial. Not only does this remove any doubt that the individual is able and motivated to succeed, but also allows the new leader to develop their own business strategy and deliver innovative ways of working with the guidance of an experienced mentor. A company that implemented this approach well is Yorkshire-based oil specialist the Kerfoot Group, whose founder/owner David Kerfoot successfully appointed his daughter Jennifer to a position on the board as HR Director before Jennifer ultimately took charge as CEO a few years later.
Seeking external leadership
Even in the eventuality that a suitable candidate is found within the family circle, the value of outside counsel cannot be underestimated. Mixing family with business can sometimes lead to biases in decision-making influenced by emotional considerations and politics. Leaders should consider appointing an independent non-executive director with supplementary experience or skills to help to moderate the decision-making process and ensure enhanced objectivity.
In the event that a there is no qualified or engaged successor within the family, the owner has a critical choice to make, either appoint an external leader themselves or sell the business. Implementing this change effectively, whichever route is selected, is essential for the future success of the firm and its employees.
If a new CEO is appointed with the previous leadership still in control of the business, great care must be given to share knowledge but also allow this individual autonomy. Often, outgoing executives can find it difficult to step back and this need to involve oneself in the day to day running of the firm, although helpful in the short term, can quickly become frustrating and demotivating for the new CEO. Striking a balance is key – in most cases an outgoing leader will prove a valuable asset on the business’ board.
Alternatively, it may be decided that the sale of the business, perhaps to a private investor, private equity house or a positive and co-operative trade sale is the best option, allowing the family to reap the financial rewards of their life’s work. The latter option being the decision made by the aforementioned Kerfoot Group, following the end of Jennifer Kerfoot’s successful tenure as CEO, with the business subsequently being sold to French agro-industrial firm Avril Group.
Whilst such a transaction reduces the risk of undue interference, the incoming owner will still face the considerable challenges associated with being the first non-family member to run the business. Leadership should ensure the role is undertaken with a high degree of emotional intelligence and care is taken to preserve the organisation’s culture and values. Gradual change will more likely keep staff on side than an immediate overhaul – evolution rather than revolution is instrumental in gaining credibility and authority with the workforce.
Whatever form new leadership takes, whether it be passing down responsibility to the next generation, or entrusting the future of the business to a meticulously-selected external party, early action and contingency planning is essential. Business owners should ensure they have a strong and stable team around them able to take the reins should circumstances require, and objectively select a predecessor that is able to protect the values, outputs and workforce they have worked so hard to create.
Simon Walton is partner and head of consumer practice at Berwick Partners.