Family Business and Succession Planning Dr. Yong Wang Reader in Family Business & Entrepreneurship Wolverhampton University Proportion of OECD Firms That are Family-Run in Percentage Italy 99 US 90 Sweden 90 EU Over 85% of EU/US businesses are family run 85 Spain 80 UK 75 0 50 100 150 - Upton and Petty (2000) Family Business Dynasty TOYOTA, FORD, HONDA, FIAT MORISSONS, WAL MART, SAINSBURYS, WOOLWORTH L’OREAL, ESTEE LAUDER IKEA AMAZON MARS, REMY COINTREAU HOSHI HOTELS OF Japan: 718AD, 46th Generation ® What is family business? 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) Failure rate from 1st to 2nd generation 30% Continuation 70% Failure Failure rate from 2nd to 3rd generation 20% Lost 2nd Gen 10% Continued Initial 70% Failure •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 Business Survival –Ward (1987) 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 • …………………… Appoint a family member Sell part of the business Do nothing Succession Options Liquidate the business Sell the entire business Family Business Strategy – the likely routes To pass on to the next generation within the family To partially exit, realise wealth and become less active To sell the business (trade sale) To float the business and realise wealth 51.5% To liquidate the business 3.8% SandAire 2001 Survey - MBS 44.9% 44.1% 15.3% 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 process Predecessor Sole Operator Monarch No Role Helper Overseer/Delegator Manager Consultant 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?