SUCCESSION IN
FAMILY BUSINESSES

HANDING THE BUSINESS ON TO THE NEXT GENERATION


Passing a family business on to a successor continues to elicit hopes, anxieties and expectations for every family entrepreneur. On the one hand, attention is focussed on the family business that needs to be kept running. Considerable organisational and leadership issues can arise, as well as problems concerning inheritance and tax laws. On the other hand, the business family cannot be ignored, as it also faces challenges in selecting one or more successors from within. Expectations of equal treatment and fairness need to be resolved, competence needs to be assessed, selection decisions made. Loss of face should be avoided at all costs, since it can often cause massive family conflicts. Handling successors from outside the family along with the expectations people have of ‘other people’ has to be done inside the family as well. Another aspect which WIFU regularly picks up on and examines in its research is female succession. This entails special circumstances, criteria and aspects that family businesses need to consider.

 

(Video available in German)

BRINGING UP A SUCCESSOR IS NOT EASY


Few situations could be as important to a family business – and as fraught – as succession in the company. The whole business usually passes through far-reaching changes, and functions, roles and attributions have to be clarified and amended in the family and shareholder group. Many company crises and insolvencies can be traced back to failed succession processes.

Despite all the research and advisory literature that exists, and countless checklists on the subject, there still does not seem to be a universally valid success strategy for family businesses. In WIFU’s view, one problem is that succession is usually understood as the decision to hand the business over at a particular point in time, and not as a systematic process. Furthermore, the focus is often solely on the person of the successor; the one handing over is often left out of the equation.

Families themselves are partly to blame. They often avoid addressing the topic for too long because it involves engaging with highly emotive themes – fairness, children’s abilities, roles and activities in the ‘post-working phase’. The situation comes to a head and escalates when the decision to hand over takes place. It seems to work better if succession is viewed as an ongoing responsibility inside the family.

 

The Witten model of family succession in the company

The Witten model of succession therefore describes the succession process as an ongoing process that extends beyond the actual handing over of responsibility. The question of succession begins at birth and certainly does not end when responsibility is passed on to the successor. Its progression can be divided into nine typical phases. The duration of these phases is not so much a matter of time, it is more about the themes at the centre of each one.

TEN GOLDEN TIPS
ON SUCCESSION


  1. Talk about succession!
  2. Differentiate between succession on the shareholder side and on the company side.
  3. Take note of the financial, tax and inheritance law implications.
  4. Think of the business (as distinct from the family).
  5. Think of the family (as distinct from the business).
  6. Prioritise competence as the criterion for selecting succession candidates.
  7. Successors should be allowed to pursue their own entrepreneurial paths.
  8. Do not leave successors alone, but do not abandon the older generation either.
  9. Consider alternatives to familial succession.
  10. External advice is useful.

You will find a detailed description of these tips in our best practice guide ‘Succession in family businesses (Available in German)’.

RESEARCH PROJECTS AND EVENTS CONCERNING SUCCESSION


RESEARCH PROJECTS

  • Women in family businesses – daughters in succession [completed]
  • Future trends in succession [completed]

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