CHALLENGES OF

SUCCESSION PLANNING

IN FAMILY BUSINESS

EDDY M. SUTANTO – PETRA CHRISTIAN UNIVERSITY

THE TWO MOST IMPORTANT ISSUES FOR FAMILY BUSINESSES

OUTSIDE EUROPE AND THE US

ARE TO DO WITH OWNERSHIP DESIGN AND SUCCESSION

SUCCESSION IS VERY CHALLENGING

FOR BUSINESS FAMILIES

REGARDLESS OF ITS SIZE, COUNTRY AND CULTURE

RESEARCH FINDINGS : INSEAD

•IN CHINA, THE AVERAGE PRIVATE FIRM IS NOT EVEN 20 YEARS OLD,

•IN INDIAN FAMILIES AT THE HELM OF SOME OF THE WORLD’S BIGGEST CONGLOMERATES ARE ALREADY LOOKING TO TRANSFER THEIR WEALTH TO SECOND AND THIRD GENERATIONS.

•IN EUROPE, SOME ESTABLISHED FAMILY ENTERPRISES HAVE BEEN WORKING FOR OVER 100 YEARS TO KEEP THE FAMILY AND THE BUSINESS MOVING FORWARD TOGETHER.

SUCCESSION SURVEY

•SLIGHTLY MORE THAN HALF OF MULTI OWNER FIRMS DON’T HAVE A SIGNED, DOCUMENTED SUCCESSION PLAN IN PLACE.

•79% OF FIRM OWNERS SAY SUCCESSION PLANNING WILL BE A SIGNIFICANT ISSUE FOR THEIR FIRM WITHIN THE NEXT 10 YEARS.

•44% MULTI OWNER FIRMS EITHER ARE DISCUSSING A MERGER, ACQUISITION, OR SALE OR ARE PLANNING TO DO SO IN THE NEXT TWO YEARS,

•AMONG SOLE PROPRIETORS, ONLY 6% HAVE PRACTICE CONTINUATION AGREEMENTS (PCAS), THE FIRST STEP IN SUCCESSION PLANNING, IN PLACE.

AN IMPORTANT RISK MANAGEMENT AREA

•IT’S CRITICAL HAVING ONE FOOT TODAY AND ONE FOOT IN TOMORROW

•WITHOUT SUCCESSION PLANNING, AN ORGANIZATION'S FUTURE VIABILITY IS AT RISK

•IT ALSO REINFORCES LEADERSHIP BEHAVIORS

CHALLENGES

SUCCESSION PLANS OFTEN CONCEPTUAL

•MORE IMMEDIATE CONCERNS

•A LOT LIKE PREPARING TO SELL YOUR HOUSE

•MOST FIRMS ARE MISSING OUT ON ONE KEY ASPECT OF SUCCESSION PLANNING BY NOT HAVING FORMAL WRITTEN REQUIREMENTS FOR NEW OWNERS

HESITANCE ON GROOMING SUCCESSORS•42% - A LACK OF CONFIDENCE IN THE LEADERSHIP ABILITY OF EMERGING SUCCESSORS

•A LACK OF UNDERSTANDING OF THE TALENT WITHIN AN ORGANIZATION

•A LACK OF ADEQUATE COACHING, MENTORING AND TRAINING

•A LACK OF INTEGRATION WITH PERFORMANCE MANAGEMENT AND LEADERSHIP DEVELOPMENT

•A LACK OF COMMUNICATION

TIPS FOR YOURS

1. WRITE A THREE-YEAR PLAN

2. KNOW YOUR EXIT STRATEGIES

3. DEVELOP YOUR SUCCESSORS

4. A TALENT-FOCUSED MIND-SET

NURTURING FUTURE LEADERS EARLIER CREATES A COMPETITIVE ADVANTAGE