Succession planning: Planning for success
Dr Richard Schrapnel
The next eight years represents a period of great opportunity and risk for Family Businesses in Australia that will impact not only individual family wealth, but also the longer term prosperity of our Nation. However many business owners, in addition to our political leaders, have not recognised the importance of this period.
By the year 2020 the Baby Boomer generation will be aged between 56 and 74 years of age, meaning most business owners will have to have exited the active management and ownership of their businesses. The latest survey data available indicates that around 75% of business owners have no exit strategy. With the estimated market value of these businesses changing hands being valued at some $3.5 trillion, this is a massive shift in control and value which will impact the prosperity of the Australian economy.
The greatest opportunities lie in those exiting owners getting ahead of the curve and planning for their succession effectively, and for the new generation of owners seizing the opportunity to acquire great businesses and continue to build them for the next generation. The risk lies with those who do nothing and simply miss the boat. Effective succession planning will become a critical skill for business owners to capture the opportunities and to avoid the risks.
Succession planning is often thought of only in the context of transferring a business within a family. However succession takes many forms in today’s market. It can comprise outcomes as diverse as the outright sale of the business to third parties, merging the business with others, the sale of the business to the management team and employees, the closure of the business and sale of assets or, in some cases, doing nothing and facing the gradual decline of the business.
Although family business succession has generated considerable interest over recent years, there is very little Australian research on what makes a successful succession process.
Pitcher Partners in partnership with Swinburne University have been undertaking an Australian Research Council supported study into the success strategies, barriers and dynamics of family business succession.
The preliminary results paint a diverse, complex and sometimes surprising picture of the issues surrounding succession planning:
· As is to be expected, there is a high degree of sensitivity around the issue of succession and a great deal of uncertainty. This leads to a lack of willingness to engage in conversations with family members that facilitate effective succession.
· Although traditional thought would have dictated that the business is passed to the next generation, there is an overwhelming view that children are not expected to follow in the family business. Children are seen as having a choice, combined with the belief that they do not have a natural entitlement to ownership and control. These views create uncertainty on both the part of the exiting and new generation with neither being sure what the future holds.
· However there remains a strong sense that wealth should pass along family lines, with lineal descendants being the recipients and the wealth being protected for future generations from the breakdown of relationships and marriages.
· In an attempt to simplify the process, there is an uncertainty and hesitation regarding the inclusion of spouses in the succession process. This uncertainty is not about inclusion itself, but rather a difficulty in how to include and engage them in the discussion.
· Husbands are inclined to want continuity of the business along family lines, while wives are more inclined to express their reservations about the impact of the business on the children’s wellbeing.
· Succession is generally seen as a process of fairness, not equality, where recipients receive a fair but not necessarily equal entitlement depending on their contribution to the business.
To summarise the findings to date, there is a hesitation about succession, a reluctance to engage in what are seen as uncomfortable discussions, uncertainty about how to proceed and a resulting delay in commencing or engaging in a meaningful way in the process of succession.
Over 40 countries are participating with the results set to refine the research outcomes and provide an unparalleled breadth and depth of knowledge into succession planning. Such a research project has never been undertaken before. Australian businesses will be able to benchmark their approach to succession with other family businesses from around the world.
The Pitcher Partners/Swinburne University Research will shortly conclude and the results will be released in October 2014.
For further information contact Pitcher Partners on (02) 4911 2000, email firstname.lastname@example.org or visit www.pitcher.com.au.