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  • Writer's pictureTsitsi Mutendi

THE SUCCESSION IN THE FAMILY BUSINESS “8 KEY QUESTIONS”



FAMILY BUSINESS EVOLUTIONARY PROCESS

Every family business is in a continuous evolutionary process, from its foundation and goes through generational cycles, between each generational cycle the leadership succession event takes place where the baton is passed from one generation to another.


The succession of the leader Is a critical event where the company can disappear or take a quantum leap of growth. We have called this critical moment of succession in the family business the Black Hole of Family Businesses, this being an energetic point where the company can disappear quickly or grow and develop.


BIMBO SUCCESSION CASE

A good example of succession is this family business, during the first generation, the grandfather, founded a successful bakery where bread is made in wood-fired ovens, the children with more preparation than their father suggesting that he grow the business with the elaboration of box bread in gas ovens, with great resistance from the grandfather. Finally, the grandfather is convinced, integrating his wisdom with the energy of his children and in a few years Mexico is filled with Bimbo brand box bread factories.


In the third generation cycle, the ideas of the grandchildren arise, who suggest buying one of the largest bread factories in the United States to position itself in that market, the investment was very large and endangered the stability of the company.


Finally, the third generation convinces the second generation to make the purchase, and Bimbo is positioned in the most competitive bread market in the world. Once the operation is completed and is successful in the United States, Bimbo installs bread factories all over the world, including China, becoming the largest bakery in the world. Bimbo is a good example of how to successfully carry out generational changes, integrating the wisdom of parents with the energy and innovation of their children.


THE FORMATION OF SUCCESSORS

This training begins from the birth of the children, the next successors of the company, who are educated with values, good habits, discipline, and love for the family business. This continuous training in good schools and professional preparation, always looking for the taste of the children for their studies and aspirations and never forcing studies that do not correspond to the dreams of the children.


Children must participate from an early age in occupations within the family business that gives them pleasure, a taste for work, and obtain good results. Finally, when they are ready, offer them job opportunities that allow them to develop as Directors.


Sometimes parents are wrong, as is the case of an important company in Monterrey:

The founder of this company sent his son to prepare for many years at a prestigious engineering university in the United States, upon graduation he was offered an important position in the company, and after a few months of work, the son resigns from his position with great anger by his father and decides to go study music in Europe, which is what he had always wanted.


This successor, after a few years, became one of the best cellists in the world and his father’s company disappeared.


PROFESSIONAL DIRECTORS

Sometimes, the family business does not have relatives who meet the requirements of a good General Director, in these cases it is best to hire an External Director who meets these requirements, passing all the partners to the board of the family business.


The election of these Directors must be a decision of the partners and for a certain time, always seeking that the Professional Director meets the objectives required by the council, if this does not happen the external director is renewed by another who meets the requirements and obtains results.


Who Appoints the Director General?

It is recommended that this decision be made by the company council in consensus, whether this candidate is a family member or an External Professional Director, this appointment should only be for a certain time.


KEY QUESTIONS FROM DIRECTORS

In our consultative work with family businesses, questions constantly arise on this topic that we would like to share with you.


1. How can I motivate and convince my son to be my successor in Management?

The process begins when the successors are children, and contact with the company must be of satisfaction and not punishment, the message is that the company is a source of satisfaction, development, and abundance.


The experience with the company must be positive from the beginning, the example of the father is important.


The son must experience through the father’s experience that working in the family business pays off.


What son is going to want to work in a family business that the father has complained about all his life?


As parents we must respect and listen to the personal life plans of each child, if their dream is outside the family business we must support them and give them our blessing.


2. I have several children who can be my successors in the Directorate, there is one in particular that I think is the best, how can I choose it without conflicting with the others?

The conflict logically happens if you choose your favorite Director.

The best thing is that the partners select it as part of a decision of a Board of Directors, clarifying that this decision is not for life, but for a certain time and based on results.

The Board of Directors may re-elect or change the Director according to the results of his management.

It is also convenient to establish the requirements that are requested to occupy this position and make a policy in this regard.


If anyone has a complaint about the selection of the Director you can always say that it was a majority decision of the board.


In this Board of Directors, the owner acts as President and always has the right to veto.


3. Is it convenient to hire an external non-family Director?

In some cases, it is the most recommended, for example:

  • Family successors do not yet have the necessary experience.

  • None of the family successors meet the requirements of the position.

  • No family successor has this position contemplated in his life plan.

  • Sometimes, an outside Director is hired and given the responsibility to train successors and prepare them to take the position of future Director.

It is very comfortable and sometimes avoids problems that the Director is not familiar with, since it leaves the entire board of directors on one side of the table, evaluating the results of an external Director.


It is very difficult to coldly evaluate the work of a Director when he is your son or your brother.


4. What does a management succession plan contain?

Normally, the company plan, its objectives, its growth, and the evolution of its organizational chart are analyzed. The owner’s life plans are also elaborated, including his retirement time, desired activities with retirement, his economic situation, the life plans of his successors, his dreams, and his preferences.

It seeks to integrate the life plans of family partners with those of the company, seeking to achieve the objectives of both.


5. What happens if there is no management succession plan?

The owner, director, and father may eventually pass away, leaving a succession problem in the family business that is difficult for the children to solve. They must answer the following questions:

  • Who should be the new Director?

  • Am I willing to follow my brother’s orders?

  • What if it doesn’t work?

The problem is so serious that it is often decided to sell off the company and distribute it equally, rather than facing it.


6. What would my role be when I retire as the owner of the family business?

At a Family Business conference, an owner and Director of a family business told us with tears in his eyes… “I feel that when I leave the company and leave it to my children, I will stay at home to wait for my death and that does not matter to me.” Like nothing”

If the latter happens, it would be wasting years of the founder’s experience and wisdom.

The objective is to achieve a succession plan in the family business where the father acts as Chairman of the Board, no longer operating, but willing to help and listen to the new generation, which must reinvent the company, after all, the successors are better prepared and better know the current and future world.

On many occasions, projects appropriate to his experience are delegated to this President or he is asked to participate as a member of special committees.

His office must be kept, now as President, but with flexible hours and without so much obligation.


The father who retires and remains as President of the Council, must not operate or continue directing the company, he must learn to listen and let go of the company, make decisions in consensus with the other members of the council and enjoy the process.


The challenge is to integrate the wisdom and experience of the owner with the drive and preparation of the children to reinvent the company.


7. How necessary is a Board of Directors to carry out the management succession plan?

It is necessary and very important, a council with external directors with experience in family businesses, who act as arbitrators and regulators of a council and who also contribute with uncontaminated opinions is essential in the generational change.

A good family council takes care of the company, the family, and the assets, and of course a succession plan in the family business with the appropriate policies that dictate the rules and approve the requirements of the new Director, the selection system, the timing and how to evaluate it.


8. How do I protect myself financially in retirement?

A good package of shares, a reasonable salary, as Chairman of the Board, and some benefits such as a car, insurance, etc.

Retaining some real estate and its income will also help you have a good and secure retirement.


If successors are prepared from a young age with love for the company, it can successfully pass through several generations, if the owner or founder of the family business is prepared to release power appropriately and pass the baton to the next generation, will generate well-being for family members and growth of company and its assets.

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