No, inheriting the family business is not, in fact, a birthright

Family businesses are known for not planning for succession. Recently, it was estimated that around 75 per cent of family businesses have failed to plan for the retirement of the old guard, and the heralding into leadership of the new guard.

For many family-run businesses, succession is simply choosing the oldest child or immediate family member once the current leader steps down or passes away. Despite increased awareness nowadays, many forget to consider checking whether that family member is even interested in taking over. Indeed, for many who grow up in family businesses, interests could firmly lie outside the organisation.

In some cases, which has proven to be a highly effective approach, the next up-and-coming family business leader may spend some years working outside of the company, for another organisation that perhaps shares similar business interests, in order to gain the necessary qualifications and experience. After some time, the would-be family business leader would return to the family’s business, to take charge of the organisation.

Despite its many benefits, this approach is not without drawbacks, as it can be difficult to return to the fold. Indeed, the business leader should endure a rigorous selection process so that the business can ensure that the necessary values have been instilled to appropriately serve the family business.

Undoubtedly, it is not an individual’s DNA that will determine how suitable a person is for a particular role, but it is the prospective leader’s capabilities and personal traits. Organisations may also hire outside of the family to compliment and support the newly appointed family business leader, contributing to a winning formula at the helm of the business.

The moment the chosen next family business leader agrees to taking over, in the interest of the individual and of the business, a succession plan should be put into motion, grooming the next-gen leader and preparing them for taking over. In the case where the chosen leader is not yet ready to take on the responsibility, family businesses may opt to search for a new leader from outside the family.

Central to a succession plan being formulated on stable ground is taking an honest approach into assessing the family business’ needs. What does the business need to continue being steered on the right path, guaranteeing success in the longer-term?

Several advantages lie in planning succession well in advance. Chief among them is the ability to review processes, dynamics and goals when assessing the needs of the business. Once the foundations are clear and the business owners are on the same page, candidates can be properly vetted in order to avoid costly mistakes.

As the old adage goes, do not set up for failure by failing to plan. Launching the succession planning process before the issue of succession emerged will allow for a smooth and efficient hand over, and will prevent having the right person come into the wrong situation. Ultimately, nobody plans to fail but many fail to plan.

As with most things in life, plans can go awry, therefore planning ahead with enough leeway will allow an organisation to tweak and adjust accordingly, ensuring a successful outcome.

At the Family Business Office we can offer you assistance in dealing with family business succession planning issues through incentives supporting advisory and mediation services. Contact us today on familybusinessact@gov.mt.