Family values and governance are critical to effectively manage the challenges of succession, wealth preservation and philanthropy in a family business. Without these being in place, a family will struggle to maintain family harmony and longevity of the business. These were the common messages shared at the 2nd KPMG Family Business conference recently held in South Africa in September.
The conference focussed on three topics: Succession, Wealth Preservation and Philanthropy and included delegates working through the relevant Sages case study, presentations by a successful family business or expert and a panel discussion on each of these topics.
A summary of key messages will be shared in three parts.
Sustaining a family business beyond generations is often a challenge and fewer than half of all family businesses survive the transition from one generation to the next. This was mentioned a few times during the day. Families in business have an opportunity to create a lasting legacy that brings with it a sense of accomplishment and pride by doing the following:
Effectively managing leadership succession, which is one of the most difficult issues in family businesses. A lot of businesses fail because succession is not handled properly: the leader does not organise succession, never retires, or does not prepare his children to work together.
Philip Krawitz, Chairman of Cape Union Mart (4th generation South African family business) shared his views on family business as well as succession. He highlighted the founder/current leader plays a vital role as the custodian of the family business and should ensure that in order to ensure effective succession, they need to:
The process should be as objective as possible and start with the business needs. Families need to avoid nepotism and build the best team to run the business. The company thrives and the family benefits.
Several options should be considered, including hiring a non-family executive and changing the structure of the leadership team. If considering hiring a non-family executive, the job specification needs to be clearly articulated and define what you want in the individual.
It is the role of the Board of Directors to select the next CEO. While business leaders may have good ideas regarding who could succeed them, the Board of Directors can play a key role in the successor’s selection – and it is their role. Philip shared that when selecting the new CEO of the business, the entire board and family members selected the current candidate, whereas he selected the other candidate. He trusted their judgement and it was the best decision for the business.
The key to succession is getting the basics right and considering all the stakeholders (family, customers, suppliers, family) as a custodian of the business for the next generation.