CHAPTER 4 ESTABLISHING SUCCESSION IN OWNERSHIP
AND LEADERSHIP
INTRODUCTION
• The most dangerous period a business faces is
that of succession when ownership and
leadership pass from one person to another.
• This chapter guide some of the dilemmas and
choice that family business client will have to
make.
• Ownership and leadership of a business can
pass to members of the next generation,
representatives of that generation or outside
agents.
• The challenge of professional advisors is to help
the family see succession as a process that must
take place over many years
WHEN TO BEGIN PLANNING
 Succession is a process that begins when
potential successor are still children.
 Parents must teach their children the important
attitudes about people , work, money,
competence , quality, confidence, the work
ethic, life balance and work commitments.
 Women opportunity
 Professionally run companies base employment
decisions on objective criteria, examination of
potential successors on competence, training,
and desire
OVERCOMING RESISTANCE
• Parents may fear that succession planning will
force them to choose one child from several as
successor and create conflict that will destroy
the family.
• The children may view this choice as a
referendum on which one their parent love
most.
• Some parents may question whether their heir
can do the job.
• To them, succession planning forces children to
confront their own capabilities and desires and
also tends to drag up old sibling rivalries and
other unresolved family issues.
• Because the process is often an emotional
rather than a rational one, parents will just
avoid the whole thing.
• Most family business management is informal.
• The family often never learns to do systematic
planning together.
• Many family members do not work in other
business organization before joining the family
business and have not been exposed to or
trained in traditional business planning.
• Family members who attempt planning without
these skills often get caught up in personal
issues, conversation deteriorate into
arguments, and so forth.
DEVELOPING A PLAN
(According to Jaffe, Lane, Dashew & Heisler)
CONSIST SIX STEPS
A rough outline of the bases for advisors to cover in
order to achieve successful succession planning.
STEP 1
 Get a commitment from all family members
 A commitment means committing the
necessary time & financial resources.
 Family members must be patient, open-minded,
and willing to compromise self-interest for the
good of the group.
 Touchstones of the commitment is realization
of the consequences for family members, both
financially & personally of failure to achieve
successful planning.
STEP 2
 Help set aside competitive ways and teach them
more constructive ways to work together
 It is critical that the adversarial tone that
characterizes many sibling relations be
minimized even though these feelings will
probably never be overcome completely.
STEP 3
 Adopt a business planning process that begins
with a mission statement and strategic plan.
 Developing a mission statement for the family
and another one for the business are the first
steps to being more systematic about the future
direction of the business and the family.
STEP 4
 Create a personal development plan for family
members who work in the business.
 The family business advisors should emphasize
that personal goals and personal development
will improve the business.
 Give a clear understanding of the overall
direction of the company and how each
individual fits into it
STEP 5
 Develop an appropriate governance structure
for the ownership management interface of the
business
 A family board and family forum can balance
the diverse interests of all players in a way what
works for the business, for the family, and for
each individual.
STEP 6
 Put in place legal and financial structures to
implement the succession plan
 Many founders try to make the business plan fit
the estate plan when in fact the two should be
developed simultaneously.
 Even the best estate plan may simply be
unworkable for the succession of a business or
may generate very bad feelings between family
members.
 The single most common shortcoming of the
successor group is failure to understand fully
the financial aspect of the company.
 Advisors can recommend that potential
successors better prepare themselves by taking
business courses at the local community college
and attending conferences, seminars, and
workshops offered by their industry’s trade
association.
 A common mistake is to leave equal amounts of
stock to those children who work in the
business and those who do not.
Resistance To Succession Planning
Resistance in succession planning can be categorized
into 4:
• Owner factor
• Family factor
• Employee factor
• Environmental factors
OWNER
1. Fear of death
• Owners believe that only they who can
determine the success of the business.
• Therefore, they are afraid to face the reality
when they no longer own the business after the
replacement process.
2. Reluctance to let go of control and power
• Generally, it is the business owner's
responsibility to manage their own business and
indeed have full control over their business
operations.
• They are not able to relinquish their powers
easily because they have the power to help
them influence others.
• Letting go is a huge loss for a business owner
who has been in business for a long time
3. Loss of identity
• Owners will be afraid of losing power when they
give their power or position to their heirs. This
is because losing power has something to do
with losing their identity.
• Once an owner hand over a business to their
heirs, they will feel that they no longer have the
personal ability and potential to manage the
business.
 • This is because the owner sees the business as 1. The spouse’s resistance to change
part of their world and their personal
• Usually, spouses do not encourage their
achievements.
husbands to resign and retire from running the
4. Bias against planning
business.
• The success of a transition usually results from
• The wife also does not want to give up her
the planning that was planned before the
transition took place. major role in the family business.

• Owners are encouraged to become executors • If her husband left the business, his wife would
rather than planners. be afraid of her own personal and social identity
• This is because they consider planning is a will be affected.
hindrance and a bureaucracy.

5. Inability to choose among children 2. Norms against discussing family’s future

• The key requirement for selecting a successor
to continue and manage the business is the
success and ability of the successor.
• But in the value of a family, children should not
be the subject of evaluation and selection. They
should be loved and treated equally.
• Usually, the owner will choose the children they
love as their heirs
beyond lifetime of parents
• Financial matters and who will inherit the
parent business in the future should not be
discussed before the parents.
• Because of this, owners will feel that their
children are more interested in their property
and business than their health

3. Norms against favoring sibling

6. Fear of retirement
• Barriers to succession planning and preparation
• Owners will feel scared when they are in
retirement. This is because they are not ready are the principles of equality between siblings.
to give up the business to their potential
• If all the children of the owners get the same
successor.
shares it will cause a fight over who will be the
• They may find that life after retirement is boring
because they are no longer busy with business. manager in the future.

• In addition, they also fear losing their self-

esteem and the risk of losing their business to a 4. Fear of parental death
not competant successor
• Owners who die will cause their children who
7. Jealousy and rivalry
hold the most shares will dispose of their
• Owners will envy or resentment when they feel siblings from business
that the heirs are simply doing the thing and
not trying to make sure that the business 32
continues forever.

• Therefore, conflicts between parents and

children are always happen in the family
business.

FAMILY