You can pick your friends but not your family—which can make generational succession
planning a risky road. The third emperor of the Roman Julio-Claudian dynasty,
Claudius, is a case in point.
Though he made a name battling the British tribes, his promotion to the big time
was unplanned. He was acclaimed emperor only after his unstable nephew Caligula
was assassinated and his brother Germanicus (originally groomed by Tiberius for
the position) met a suspicious demise somewhat earlier.
Out of all this instability some better planning and selection mechanisms should
have been put in place rather than a ‘flying by the seat of your toga’ approach.
Sadly, they weren’t. Having foiled one attempt to circumvent his reign, Claudius
made the fatal error of then backing his fourth wife’s snivelling offspring, Nero.
Concepts such as generational succession, management buyouts, or changes in partnerships,
sound straightforward enough until you factor in a plethora of underlying issues.
- The next generation buying out the family share in a multiple shareholder company
- The management buyout buyout of a share in a multiple shareholder company
A third party purchasing a major stake in a multiple shareholder company.
The challenges in realising a successful exit from business are undefined at the
start of the succession journey and often many aren’t identified until the last
steps are taken. Nevertheless, from our experience there are five common indicators
that need to be read like tea leaves in order to increase the odds of the empire
- Attitude Are the inheritors commited to the business? In generational succession,
the son ordaughter must be passionate about future success, and not there merely
to continue to get the lifestyle that Mum and Dad had.
- Entrepreneurship Do they have the skills to push the business forward in
an ever changing environment? Their ability to develop new markets, steer through
industry risks, engage new technologies and seize opportunities will be integral
to ongoing success.
- Leadership How will they be viewed by other employees, the management team,
and in multiple shareholding companies, by their co-shareholders? Envy, disrespect,
and unwarranted promotion are common emotions associated with a sudden elevation.
Do they have the ability to instil strong governance yet also possess a ‘work in
the trenches’ trait?
- Financial Acumen Do they understand enough about financial management and
liquidity to build a robust business? Can they link their strategic ideas with financial
parameters and create a stronger return to investors? What about their financial
needs and capabilities as they buy in—how will this be funded and are other shareholders
- Technical Nous Do they fully understand the nuts and bolts of the products
and have the ability to answer the tough questions from customers? Can they improve
or adapt the offering or are they still reliant on other key employees of the business?
Is there an unaddressed risk?
These are by no means the only issues but the message in this regard is simple:
invest the time up front to get it right rather than incur a cost later on to unwind
an ineffective changeover.
Hayes Knight North
T: 09 414 5444 W: www.hayesknight.co.nz
As business advisors, all too often we are asked to unwind succession strategies
because they haven’t been planned properly. What we’d recommend NOW in order to
avoid a Nero lookalike sitting in the business driver’s seat is to:
- Grab the succession planning ‘bull’ by the horns. Front up,
face the issues, engage someone independent and/or experienced to help guide the
process and make decisions.
- Make sure you have good governance systems and processes in place. To help guide
you through the process and to make the incoming person’s life less stressful.
- Think about some sort of ‘mentoring’ or transition program
for the new blood as a prerequisite of success.
- Ensure all funding issues and sources are identified.
In other words, stop fiddling and seize the moment.