‘A 6.2 : Family Business Management’.

Unit - 5
2022

Unit-5 * Managing Succession

5.1 The succession paradox, Resistance to succession planning.
The founder - The family - Employee & environmental factors.
5.2 Leading the transition – Start planning early, Encourage intergenerational
teamwork, Develop a written plan, Involve everyone & obtain outside help,
Establish a training process.
Plan for retirement, Decide when to retire & stick to it. Selecting the right
successor - Whom to choose? What if no one fits the bill?
5.3 Incumbent generation leadership: governance and resolution of the past.
Succession in older family businesses - Second to third generation, Third
to fourth generation

Meaning of succession (in a Family Business):

‘Family Business Succession’ - It is the process of transitioning the management & the
ownership of the business to the next generation of family members. The transition may
also include family assets as part of the process.

Family members typically play a controlling role in both the management succession as
well as the ownership succession. As such, the effective integration & management of the
family component will have a determining effect on the success of the succession process.
 Far too often the family business succession process is governed by the technical
components, which are typically worked out between the current owners & their
trusted advisers (e.g., accountant, lawyer). In these situations, although the impact of
the family component may be considered, it is not actively integrated into the process.
 In other situations, where there is an attempt to integrate the family component into
the succession process, it is often the process itself or the lack of formality to the
process that prevents the desired outcomes from being achieved. There needs to be a
departure from the traditional approach to business succession to a customized
approach for family business.
Family businesses are different & what makes them different is, the family component.
The potential impact the family component can have on the management & ownership
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of the business is such that, it needs to be understood & effectively managed. Many
family businesses have successfully managed their family components & have done so
by applying proven family business ‘best practices’

The Successor's Perspective - Approaching succession, as a successor brings a whole

new set of questions & challenges, we now try to understand some insights & tools to
help younger family business members in their decision as to whether to join the
family business or not. If such member, i.e. younger one, desirous and/or are planning
to join the family business, what is an effective way to introduce him/her as successor?
To better understand the perspective, it is useful to first think about how the
opportunity of joining the family business might work in favour as well as against you.
Importantly, it is not just about what the business can offer you, but also what
your value to the family company as a successor is.

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5.1 The succession paradox. Resistance to succession planning.

The founder - The family - Employee & environmental factors:

Family businesses are different from other types of businesses. This is because on top of
business management and operations, family and ownership dynamics come into play.
To better understand this concept and its importance, it is useful to look at family
business through a simple model. We are, now, aware about the THREE Circle model of
‘Family Business’. Family business &
ownership roles, often gets overlapped.
Successful succession is a lengthy
process, and requires inter-generational
teamwork. Getting the family aligned,
having difficult conversations, creating
the right structures & re-assessing
them, as times change, are what makes
succession a process.

A common and potentially fatal mistake

is, leaving succession to the last moment, or toward a situation, when there is no other
option. i.e. ‘Nothing to do’. This can & often has put the very survival of the family
business at risk.
 But the challenge should not scare family business owners of planning for succession.
On the contrary, this process can have many advantages, including helping to make
both family & business stronger.
 Because it requires different generations working together, as well as open
conversations among the owners, succession planning can help strengthening family
ties & engagement to the business.
 The ability to attract family & non-family successors, who are willing & have the skills
to carry on the business, is understood as ‘Succession’.
 The financial needs of the family i.e. whether cash needs to be extracted from the
business to provide for the retirement of the senior generation; can also be
understood as ‘Succession Plan’ by some of the thinkers.

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The succession paradox –

 Succession planning is one of the greatest family business challenges. A Research (by
PwC) revealed that 43% of family businesses don't have a ‘succession plan’ in place, so
with only 12% of families are making it with the 3rd generation.
 At the same time, family businesses are well known for their long-term outlook. It is
well known understanding, about Family Business, is that, they think in quarter
centuries, rather than in quarter months like their non-family counterparts do.
This gives family companies a great competitive advantage, as they tend to be more
forward looking & focused on purpose more than profit. These features are crucial to
making business successful even in todays’ competitive era.
At the same time, the second side of the coin is an alarming & there is a catch...
Due to their long-term outlook, as discussed above, some of the issues gets postponed
often, because leaders are busy in the management of business operations & its long-
term viability thinking, talking about their retirement, succession etc. Due to this view,
their long-term plans are emotive (भावपूर्ण, भावात्मक, रागात्मक), time consuming,
many a times they are mysterious to the general terms, hence difficult. This may lead to
what we say, ‘time buying’ approach, i.e. postponement of crucial handover (succession)
plans and ‘THIS is a paradox’; because, at the same time, family business owners see
themselves as stewards for future generations. In order to deliver their long-term
intentions, there are some key considerations family business owners need to take into
account.

Let’s understand it in a more informative way. Succession in terms of business leadership,

confronts the founder of a family business with a complex set of options.
In broad terms these are:
1. Appoint a family member
2. Appoint a caretaker manager
3. Appoint a professional manager
4. Exit via sale of the business, in part or in par
5. Exit via liquidating the business
6. Do nothing – (THIS is, also, a Paradox)

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Each option is distinctive & carries its own set of advantages, disadvantages,
opportunities & threats at the same time the scope & impact of these will vary from one
family business to another depending on, for example:
– The ability to attract family & non-family successors who are willing & have the skills to
carry on the business
– The financial needs of the family (for example, whether cash needs to be extracted
from the business to provide for the retirement of the senior generation)
– The personal & corporate taxation consequences of the different options
– The health & size of the business
– The external commercial & business environment at the time of succession.

 If there is a commitment to retain direct control over the business, the 1 st option of
appointing a family member to succeed, is seen as particularly attractive and if there’s
a suitable candidate, owners will choose a ‘family solution’ for several reasons:
– It gives their personal ideas & values a greater chance of survival
– They can feel their life’s work is in good hands
– They don’t lose contact with the business & may even retain some influence over it
– They feel their sacrifices building up the business will have been worthwhile.
 The appointment of a non-family successor, either to a permanent position or as a
caretaker (options 2nd & 3rd i.e. Appoint a caretaker manager or Appoint a professional
manager), may become the strategy by default if no family successors are available,
motivated or have the necessary skills for the task. Genetics do not guarantee that
families can produce entrepreneurial business leaders generation after generation.
 In terms of exit routes, some form of sale as a going concern (option 4 th i.e. Exit via sale
of the business, in part or in par) is likely to recover most value from the business.
Alternatives within this option include a trade sale (i.e. an outright sale of the business
for cash), which may be particularly appealing where no suitable successors can be
found, or a stock market flotation can be the best answer, if external capital for growth
is a priority. Similarly, a management buy-out financed by private equity funding (a
sale by the founder to the existing management team, which may include family
members), can offer a compromise between transferring the shares to the family and
an outright trade sale.

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 Liquidation (option 5th i.e. Exit via liquidating the business) entails selling of all the
company’s assets, paying its outstanding debts & dismissing the workforce. It also
involves substantial expenses & is unlikely to result in the best price being obtained.
 Finally, the founder may simply avoid planning for succession by adopting the ‘do
nothing’ approach (option 6th i.e. Do nothing), & here lies the central paradox. Despite
founders professing that a ‘family solution’ is their preferred course, in practice the
dynastic dream is rarely achieved. Doing nothing is the least logical, the most costly,
the most destructive off all the options, yet is by far the most popular.

Resistance to succession planning (i.e. Challenges to succession planning):

Large or small, every organization faces resistance or challenges in succession planning.
They can range from problematic finer points to major structural issues.
Following are the most common resisters/challenges of succession planning -
1. Limited capital - Just like non-family companies, family businesses must satisfy
shareholders’ expectations. Occasionally, a family member may want to leave the
business and be bought out of their ownership position. Family members are often
motivated to avoid conflict and may be more willing to pay out capital that would
otherwise be used for company growth, sometimes even at the expense of their own
private wealth management and tax planning arrangements. Additionally, as the family
business grows across generations, successors sometimes become accustomed to a
very comfortable standard of living. The business that previously supported just the
founder’s family may be in a situation where they may need to support multiple
families for the siblings or even cousins.
2. Lack of preparation for the next-generation leadership - In many cases, no heir or
successor is interested or qualified to lead the family business & sometimes that is
simply because the founder has not effectively prepared them for the challenge.
Following in the footsteps of a very successful parent can be an intimidating ( डराना,
धमकाना, भयभीत करना) prospect.
Deciding whom to promote - While someone might be at their particular level or
position, that might not necessarily mean they’ve got the skills or talents needed to
take the next step up the ladder.

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The pressure to reward loyalty or hard work with a promotion can be intense, and no
one likes hurt feelings; but with careful planning, it is possible to put the right person
in the role without upsetting your other candidates.
Identifying potential candidates early in the succession planning process & proactively
arranging appropriate learning & development courses is one possible solution to this
pain point.
3. Inflexibility (i.e.) Resistance to change - What made the business successful in the past
can sometimes get in the way of the company’s future. By nature, successful business
leaders tend to be remarkably driven & committed to their ideas, which may make
them inflexible. The leader needs to be open to new ideas from the next generation as
the requirements for success can change over time, and the newcomers will typically
have very different working styles from their predecessors.
Resisting bias - People find comfort in familiarity & hiring managers & executives are
no exception. Some men naturally lean toward men, some women lean towards
women & vice versa. The temptation to hire someone that fits a certain stereotype can
override logical, skill based thought processes.
Planning ahead to identify characteristics required for a successor will ensure the
candidate with skills best suited to the job (beyond their age, gender & background)
will be hired.
4. Sibling successor conflict - Children of family business founders usually grow up
observing their business leader or parent’s leadership style as a benevolent
omnipresent personality that knew every aspect of the business, and as a result they
may try to emulate that leadership style. When sibling behavior patterns that began in
childhood are brought into the boardroom, things can get even more complicated.
However, moving to a sibling leadership model requires a different leadership style
that is more inclusive & consensus building.
5. Disparate family goals - As families grow & become older, their goals & values often
evolve & become far more diverse. One family member may want to build the
business for future generations while others may want to harvest the existing equity.
Cousins who grew up in different households will usually share some values while
being very different in other respects. Managing these different goals & values can be
a significant challenge.

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6. Maintaining company morale - One of the side-effects of succession is the negative
impact it can have on company morale. Deep down, everyone worries about
retirement, or redundancy. And the taboo of talking about moving on in one way or
another can impede open discussion & threaten the importance placed on succession
planning in organizations.
To be effective succession planning needs to be a simple, open process. Every
organization should openly discuss who’s taking the reins next.

While there is no one secret formula to successively navigate a family business through
the numerous family & business issues that will arise, there are, only, best practices to be
understood, helps families deal with issues relating to the family business as they arise.

The founder:
Founder of Family Business - In a family business the founder plays the most important
role. The founder is invariably the head of the family and these dual roles place him/her
in a position of paramount importance. The management style and the agenda of the
founder go a long way in determining the nature and direction of the family enterprise. In
extreme cases, the business enterprise and the family members reflect the values and
personality of the founder.

The varied roles & responsibilities of the founder of a family business includes:
i) Starting the business,
ii) Building the organization,
iii) Providing guidance and direction to employees and family members,
iv) Constructively family members in the business,
v) Planning for succession.
One of the major advantages of the head of a family business over CEOs is that the head
of the family business is much more assured of the security of his/her tenure. The
founder or head dos not have to resort to much office politics to remain in power.
The role of the founder passes on to the successor and thee successor, as a CEO has to
play a similar role in leading the firm.

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5.2 Leading the transition – Start planning early, Encourage intergenerational

teamwork, Develop a written plan, Involve everyone and obtain outside
help. Establish a training process, Plan for retirement, Decide when to
retire and stick to it. Selecting the right successor - Whom to choose?
What if no one fits the bill?

Meaning of ‘Leading the transition’ - Start planning early, Encourage inter-

generational teamwork, Develop a written plan, Involve everyone & obtain
outside help:
Strategies to Lead a Successful Family Business are -
To Communicate, To Evolve people, To Set boundaries (clarity of roles), To Practice good
governance, To Recruit from the outside (to inject fresh talents from the outside world),
To Treat employees like family, Give options to members of the family, and To Plan for
the future. There are strategies or tips to ensure, on how to successfully run the family
business, so as to endures through the generations -
1. Communicate - Families have their own way of communicating, and, different families
have different taste to communicate. Hence there is no such best way. But it is sure
that, communication in any form is essential, to have harmonious relations between
various segments of a family. Open & regular communication shall be an essential part
of any family business.
2. Evolve - When it comes to longevity & the success that comes with it, changing with
the times is essential for any business, especially multigenerational family businesses.
Whether it is an aversion (विरोध, द्वेष) to new technology or resistance to changing
cultural norms, a family-run business—and the people behind it, regardless of age—
must be evolved or else there is a risk of alienating ( पराया करना) both employees &
customers.
3. Set boundaries (clarity of roles) - Leaders of flourishing family-owned businesses know
that setting boundaries is critical to establishing & maintaining success & to uphold a
clear separation between family & business. In other words, keep family issues out of
the boardroom, and keep work at the office.

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4. Practice good governance - Setting boundaries also extends to the governance of
family-run companies. Good governance requires, the involvement of leaders, outside
from the family. This oversight—employed by leading family businesses worldwide—
typically takes the shape of a professional, advisory, or supervisory board comprised of
non-family members with a limited no. of family representatives.
5. Recruit from the outside (to inject fresh talents from the outside world) - Just as it is
crucial to establish governance with non-family members, hence, it is essential to
recruit outside from the family for both staff & sometimes leadership positions. There
is a world of talent out there. Successful family companies tap into this talent pool for
skills & expertise family members don’t have.
6. Treat employees like family - Successful family-owned businesses treat everyone as
family, whether they are relatives or not. This practice often extends to customers too.
This tactic of ‘redefining family’ encourages staff & leadership ‘to raise the bottom line
as far as value offered’.
7. Make it optional (Give options to members of the family) - A good family business
doesn’t strongly, forcefully push relatives into joining the business. Actually, it shall
makes working for the company as an option. Any company, family-run or otherwise,
needs employees who shall be passionate about both the corporation & their role
within it. Allowing family to come to the company on their own leads to happier
employees & better business.
8. Plan for the future - Successful family businesses don’t just let the chips fall where
they may. They plan for the future, creating family business succession plans long
before actually needed. They also identify talent in employees, both within & outside
of the family, investing in them early on to ensure excellent leadership in the future.

Until now, we have understood ‘Leading’ for the family business. Leading also means
planning for future, as now, we have seen earlier. And it also means there has to be a
smooth transition to the next generation, to the next leadership, to the next level of
operation/expansion etc.

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Meaning of ‘Leading the transition’ –

Much has been understood about succession in family businesses, and it has even
become the hot topic of discussion among the family owned business culture. There are
also many real-life stories that demonstrate the potential for drama & conflict in a family
business.
Let’s, now, try to understand, why, if at all, succession is such a difficult challenge to
tackle? Everyone should agree that, getting succession in wrong-hand can have a
devastating impact on the family & the business. May of the family business leaders
indicate that, having a transition plan is critically important towards the success of
their business in long-term.

Business Transition is the term used to describe when there is a change in the ownership
of the business. Whether the transition is to grow, exit or step back from the business, it
is critical to design & implement tactics & strategies to support the transition.

Transitioning a family business is one of the most complex issues a family-controlled

enterprise will face, because it requires transitioning at 3 levels: Personal, Professional &
Business. Each of these transitions has its own set of challenges. Across a range of
succession stories, many family business leaders have indicated that they don’t know
where to begin. The prospect is so overwhelming that, they simply push things off to the
future. After all, there is a business to run. And, it is always advisable that, to start the
succession process early.

On the ‘Personal’ level, quite often we have devoted our entire adult life to successfully
running the business & keeping the peace among the family. This takes an intense
commitment & can become all-consuming. It may seem almost impossible to think
about what we would do if we didn't run the business, and our sense of self-worth may
be completely tied to the role. Leading for succession requires us to face our own
mortality. And we may wonder how we will be viewed by family, colleagues & friends
once we are no longer the CEO.

For many, succession planning feels like ONLY writing the last chapter of their life’s
novel. For others, there is incredible joy in turning over the reins & moving on to what
is next…

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It has been the experience of many that, leaders who look at succession as the
culmination of their current career & the launch to their next, not only do a better job
in leading succession planning for the business & family, but are excited to start their
next chapter of joyful life.
 It typically begins with thinking through all the things that we are good at & enjoy
doing.
 View this not as a loss, but a transition to a wonderful new opportunity.
 Map out what this looks like & how we prepare for it, and make it a reality.
 Many leaders are uncomfortable with spending time & energy on themselves, but
this is the time to do so.

Next, think about the ‘Professional’ level. Analyzing the attributes & competencies of the
new leader is not an easy task. It’s human nature to be attracted to people with similar
qualities to ourselves. It may be difficult to consider the changing landscape the
business faces & identify what attributes the next leader will need to be successful. For
the incumbent, their professional & social circles often become intertwined, and it is
difficult to imagine not continuing in these circles in the same way. Leaders often
commit to a succession plan on paper only to sabotage it in reality, by never really
leaving the role.

To prevent this chaos, it is advisable to define the role, if any, of the retiring leader
within the organization, moving forward. At best, this should be at the board level or
as an advisor, but only when asked by the new leader. Leave the day-to-day operations
to them. Seek assistance in defining their attributes & competencies, recognizing they
may look very different than the previous leadership.

Finally, there are the ‘Business’ interests to consider. Succession planning represents a
great opportunity for the business & the family to think long & hard about the future.
After all a family view the business – as an asset to be monetized?, or as a long-term
critical component of their family legacy?

Here, strategic thinking can help us about the future of the business & what it will take to
be successful from a leadership perspective. It is further advisable to use this unique
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moment in time to open the lines of communication among family members as well as
other leaders and employees. Recognize that, as much as succession planning can be a
fantastic opportunity to look ahead, others need to be involved & their opinions
considered, & communication needs to flow freely & often.

Succession can be a scary time for all, & participating in the process allows others to feel
more confident in the future, whether they agree with the decisions or not. The most
important thing is simply to get underway sooner rather than later. Think of succession
planning as a step toward aligning our own desires & those of the family with the future
needs of the business.

Establish a training process (for Succession planning):

As we understood, till now, ‘Succession planning’ is the process of replacing our
organisation’s leaders & managers with high-potential, internal (at times, may be,
external) replacements. Essentially, it is about identifying, developing & replacing
employees to make a potential shift in responsibilities/hierarchy as smooth as possible.
The purpose of succession planning is complex. It is not simply about damage control
or replacing a key leader/s, as quickly as possible; it’s about replacing a leader with
someone prepared for the role, with the potential to succeed & who can shift into the
position both quickly & successfully.

We can’t run a business, regardless of its size, without talented people ready to move
into key positions when the current occupants leave. Even the most successful
employers can run-off a cliff (चट्टान, टीला) if they don’t have a solid succession plan
in place. Hence, it is said that, succession planning is a strategy for identifying &
developing future leaders at our company — not just at the top but for major roles at
all levels. It helps the business, to prepare for all contingencies by preparing high-
potential workers for advancement.

Steps to follow while succession planning:

1. Be proactive with a plan.

2. Pinpoint succession candidates.

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3. Let them know & explain the stages.

4. Step up professional development efforts.

5. Do a trial run of our succession plan.

6. Integrate our succession plan into our hiring strategy.

7. Think about our own successor.

1. Be proactive with a plan - Sometimes we came to know, in advance, if a hard-to-

replace team member is going to leave the company — a planned retirement is a
good example. But other times, you’ll be caught off-guard by a sudden & potentially
disorienting (अक्षम व्यक्ति, अव्यवस्थित दिमाग, गुमराह करनेवाला) employee
departure. That’s why you need a plan — now.
First, consider all the key roles on our team & answer these two questions:
i) What’s the day-to-day impact of X position on our company or department?
ii) If the person currently in X position left, how would that affect our operations?

2. Pinpoint succession candidates - Once we have a handle that the departure of

certain employees might cause the ripple effect ( तरंग, छोटी लहर), choose a team
member who could potentially step into those positions. While the obvious
successor to a role, may be the person who is immediately next in line in the
organizational chart. Also look for people who display the skills necessary to thrive
in higher positions, regardless of their current title.

3. Let them know - In private meetings, explain to each protege ( आश्रित, उपजीवी)
that they’re being signalled out for positions of increasing importance. Establish an
understanding that there are no guarantees, & the situation can change due to
circumstances encountered by either the company or the succession candidates
themselves.

4. Step up professional development efforts - Ideally, we have already been investing

in the professional development of those, we select as our succession choices. Now
that preparation needs to be ramped up. Job rotation is a good way to help such

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candidates to gain additional knowledge & experience. At the same time,
connecting them with mentors can boost their abilities in the critical area of soft
skills, because the best leaders have strong communication skills, as well as polished
interpersonal abilities, such as empathy & diplomacy.

5. Do a trial run of our succession plan - Don’t wait until there’s a crisis to test
whether an employee has the right stuff to assume a more advanced role. Have a
potential successor assume some responsibilities of a manager who’s taking a
vacation. The employee will gain valuable experience & appreciate the opportunity
to shine. And we can assess where that person might need some additional training
etc.

6. Integrate our succession plan into our hiring strategy - Once we have identified
employees as successors for critical roles in our organization, take note of any talent
gaps they would leave behind, if tapped. That can help us identify where to focus
our future recruiting efforts.

7. Think about our own successor - When making a succession plan for our
organization, keep in mind that our own role will someday require backfilling.
Maybe we will decide to take advantage of a new opportunity. So it’s important to
ask our self, which employee could step into our shoes one day? And what & how
can we do, starting now, to help that person prepare for the transition?
The members of our workforce aren’t fixed assets — and changes in our team’s
line-up are inevitable. We may not always be able to predict a valued employee’s
departure from the firm. But through effective succession planning, we can pave
the way for the continuity, critical to our business’s future.

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Plan for retirement - Decide when to retire & stick to it:

Building a retirement/succession planning process or framework is about mitigating
the risks of organisational change & we need to have a plan in place. This way, when a
change at the top occurs, the friction between departments, teams & employees can
be reduced, because the ‘vacuum’ of institutional knowledge is removed. Let us
understand as, how the retirement/succession planning process works.
The Retirement/Succession Planning Process in 7 Steps –
i)Start identifying key positions
ii) Identify (Assess) needs
iii) Develop job profiles
iv) Start the recruiting process
v) Appoint a successor
vi) Handover the job
vii) Document the transition.

The Retirement/Succession Planning Process in 7 Steps - Here are seven well-

coordinated steps to ensure key positions are filled successfully -
i) Start Identifying Key Positions - This is going to require some internal reflection.
Begin the succession planning process by identifying qualifications that are
essential to the company’s success. This could include years of experience,
qualifications or licenses, or ‘soft skills’ that have an impact on company success
(like customer relations abilities etc.).
ii) Identify (Assess) Needs - If we start by knowing the key qualifications that influence
success, now we need to assess where we might lose those skills. So, we need to
establish which key positions might become vacant in the near future, assess the
risk of those positions becoming vacant (e.g. retirement dates, resignation notice
date etc.) We can take a top-down approach in this step & plan for entire
company’s succession plan starting from the CEO till further down the
organizational chart. (i.e. if we are in a pinch & want to get started immediately, we
should start filling gaps that may reveal themselves sooner than later).

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iii) Develop Job Profiles/Source talent - A key part of the retirement/succession
planning framework is having fleshed-out job profiles in place. What constitutes an
effective job profile, & where should we focus our efforts? Think of this as our
template for finding the ideal person to fill this role in the future. Essentially, it is
taking the current persons profile, who occupies this role & turning their skills into
something of a blank canvas. Source talent, that is currently within the company
iv) Start the Recruiting Process/Manage - Concrete examples of retirement/succession
planning typically begin during the recruiting process, this is where the process
takes shape.
 Building up our talent pool & Manage that talent by developing existing
personnel.
 Implementing an employee referral program.
If we are taking a proactive approach, maybe we have all the time for succession
planning, or we may want to set deadlines for finding a suitable candidate or
completing the handover period.
v) Appoint A ‘Successor’ - Whether internally or externally, this is the part of
retirement/succession planning that signals the end. While a lot of the heavy lifting
may have been done during the job profile stage, now we have someone in mind,
who would be able to take on this role. Apart from interviews, finding the right
candidate during the succession planning process should rely on more nuanced
measures. This is the part of succession planning that need to get right.
vi) Hand Over the Job - When done right, succession planning also has some gaps in
the person leaving the role. This is most felt during the handover process, where a
new employee gradually learns new tasks, both from their future co-workers &
team, as well as from their predecessor (who will share existing knowledge they
may have). Also keep in mind, that the handover period should not be too short;
especially if a key position is being filled. (It is important to bake in more time for
the position, to manage complex tasks. It requires patience). However, if a
handover period is too long, there is a risk that the successor won’t be able to come
into the role in its own capability. The successor will be influenced by how the role
used to perform & thus, he may lose out on the future-oriented skills as required
for this role.

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vii) Document the Transition - Now after the handover of the job has been
completed, ‘documenting the transition’ is a crucial step, in order to note, how the
position was filled & to inform future processes. Keep in mind the following:
 The demands of this position in particular.
 Processes that went smoothly during the handover.
 Issues during the handover that caused confusion.
 Gaps that still potentially exist.

Decide when to retire & stick to it (Important Considerations on Retiring from

the Family Business): We have put years growing our company from a one-man (or
woman) shop into a family business. Now that, we are starting to look forward to
stepping back & letting our children, family, or other trusted employees take the
reins. Transitioning ownership of any business is bought with problems that & can
lead to become a roadblocks. Here are a few tips on how to make our plan of
retiring from the family business smoother & with less discord:
 Identify ‘Key Employees’ within the Family Business - Many family business
owners have a dream that, one day their children, will take over the company &
they will retire, spending their time on grandkids, travel and so on. However, the
reality is that, not every son or daughter wants to follow his or her parent’s
footsteps. When it comes time to plan for retiring from the family business, we
need to be objective. Look at who does the work in our company, and who has
the training, ability, & temperament to step up as we step back.
The ‘key employees’ in our company may be:
 One or more of our children
 Other relatives (like own siblings, nieces, or nephews)
 Non-family employees with a long history with the company etc.
 Delegate Duties & Ownership within the Company – During the years of leading,
when we plan on retiring from the family business, it should be a learning
experience. We should use that time to train our key employees to take on the
management of the company. That means it is necessary to give up some control
i.e. Delegation.

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Of course, it is often difficult for business owners to share the leadership
responsibilities. One may be used to, being the one to approve every transaction
& attend every meeting; however, as we prepare our key employees for their
new roles, we should begin to delegate that work, according to their strengths.
 Create incentives for ‘Key Employees’ to take on risk - Those contracts can also
give us an added level of stability, so as to motivate these, so called, ‘Key
Employees’ to take over the additional responsibility. Here are some incentives:
 Salary continuation — we can promise the key employee will receive a full
salary for a set amount of time, assuming he or she stays with the company.
 Fringe benefits — we can offer to provide a company car, phone, additional
vacation days, retirement match, or other benefits to entice ( लुभाना,
फुसलाना) key employees to stay on.

 Bonuses — we can offer bonuses based on the success of the company, which
will encourage our successors to work for the company’s benefit.
 Creating a ‘Retirement Plan’ to transit-out-of ‘Day-to-Day Business’ - It’s not
enough to plan, how key employees will step up when we get retired? One must
also need to plan, as how one will step in? There will always be a learning curve
for new management, and there could be questions that arise after we are gone,
that only we can answer, otherwise.

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Selecting the right successor - Whom to choose? What if, no one fits the bill?
Selecting the right successor - Choosing a successor for our own business isn’t
easy. There are many internal elements to consider & outside factors to weigh, while
simultaneously dealing with the sensitivity of putting our business in someone else’s
hands. While developing the right succession plan can be long & arduous ( मुश्किल,
कठिन), it will be worth the effort when we know that our company is best prepared for

future changes. Although nobody can guarantee about the success, but then, we can
take extra care when choosing a successor to give our family business a fighting
chance.

Here are seven steps to consider ‘selecting the right successor’:

1. Make no assumptions - Many business owners assume their son or daughter wants
to run the company or that a particular child is right for the role. But such an
assumption can doom the company, and at times, keeping in view of the young
generations’ inclination, it could be disastrous for the running business. Hence, one
has to see the future without assuming about.
2. Decide which family members are viable candidates - External parties such as
professional advisors counsellors can provide proper input. Outsiders are more
likely to be impartial & have no vested interest in our decision; they might help us
realize that, someone who’s not in our family could be the best choice.
3. Look at skills & temperament - Once we are settled on a few candidates, hold
private meetings with each to discuss the leadership role. Get a feel for whether
anyone, we are considering, may lack the skills or temperament to run the business.
4. If there are multiple candidates, give each a fair shot - This is no different from
what happens in publicly held companies & larger private businesses. Allow each
qualified candidate to fill a position at the company & move up the management
ladder.
5. Rotate the jobs, each candidate performs, if possible - Let them gain experience in
many areas of the business, by rotating their expertise & gradually increasing their
responsibilities, setting more rigorous goals. Thus, we shall not only groom a better
leader, but also potentially create a deeper management cadre.

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6. Clearly communicate our decision - After a reasonable period of time, pick our
successor. Meet with the chosen candidate to discuss a transition time line,
compensation & other important issues. Also sit down with those not selected &
explain our choice. Ideally, these individuals can stay on to provide the
aforementioned management depth. Some, however, may choose to leave or be
better off working elsewhere. (Be forewarned: This can be a difficult, emotional time
for family members).
7. Work with our successor on a well-communicated transition of power - Once we
have picked a successor, he or she effectively becomes a business partner. It’s up to
the two of them to gradually shift power from one generation to the next (assuming
the business is staying in the family), or from one hand to another (if the successor
is not from the family). Don’t underestimate the human element & how much time,
as well effort, will be required to make the succession work.

Having understood the above steps, making the decision about who is going to take
over, is the most crucial business decision. To undertake this, as a responsibility, we
must consider their (the prospective successors’) capabilities, skills & desire to become
the new owner. (Otherwise such a chosen person may have difficulty wrapping their
brain around the prospect of taking over). It’s a lot to take in, and not everyone has the
entrepreneurial spirit, the talent, or is in the right life situation to run a business. It’s
important to pick someone who thinks alike an entrepreneur & has the experience,
confidence & courage to run the business.

Often, in family-held businesses, it is assumed that a family member should be the new
CEO just because he or she is family, but a family member isn’t always an option or the
best choice. One should, also can’t assume our ‘key employee’ wants to take on the
risk of owning & running the business.

In the case of family members, adult children in the business often feel a sense of
obligation to take over the business because they don’t want to disappoint people, but
may not truly want to be the new owner. They may feel incapable or just don’t want to
bear the burden of business ownership. It’s best to have open & candid conversations
upfront & in early stages of transition phase, to avoid any surprises.

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5.3 Incumbent generation leadership: Governance & Resolution of the past.

Succession in older family businesses – IInd to IIIrd generation, IIIrd to IVth generation

Incumbent is a person, who is currently holding an indicated position, role, or office

etc. Successor selection is a crucial decision that determines the strategic direction of
both the business & the promoter family. Hence, let us understand, the ‘incumbent
generation leadership’ in a wider sense-
 Incumbent leader – The current leader in the family firm.
 Successor – Next generation of leaders in the family firm.
 Predecessor – Previous generation of leaders in the family firm.
 Succession – Transfer of leadership from one generation to another, in family firm.
 Succession plan – Set of prepared events which occur before transfer of leadership
from one generation to another in the family firm.
 Entrepreneurial leadership – Specific style of leadership focusing on innovation.
 Organizational culture – Collective identity amongst employees of the family firm.

Meaning - The Incumbent in succession planning - The incumbent is the user who
currently occupies a job position, or the person who is currently leaving a job position.
In other words, incumbents are the employees, who you line successors up to replace
or who you replace with successors when they leave the job position. In practice,
family businesses often do not realise the need & importance to plan for succession.
Those who realizes, but still continue to postpone their decision about succession
planning.
This happens primarily due to three reasons -
i) First, often the incumbent leaders are engrossed in operational aspects of the
business & do not feel an urgent need to plan for succession.
ii) Especially with large promoter families, the complexity of family dynamics &
intermingled interface with the business can create succession, a tough decision.
iii) And most critical, is the lack of preparedness of the next-generation leadership,
which makes the incumbent leader hesitant to pass on the baton. (This often
happens with the senior generation participants in family business leaders).

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It is important to note that succession is not an event but a process that needs to be
planned for years in advance. Promoters of a few large family businesses in India have
experimented with non-family successors. However, successor choice for most family
firms is often restricted to the family talent pool, which is limited to the family size.
While non-family businesses can quickly replace a non-performing leader; but for a
family business, this is not so easy because of kinship ties & lack of alternatives. For a
next-generation family-business successor, failure can affect the survival of the
business & the family. Hence, given the high cost of failure, an incumbent family
business leader must not only plan early for succession but also take effective
measures to groom the next generation. This is the biggest succession challenge family
businesses face today. Next-generation leadership building, takes time & careful
planning. It requires diligent cultivation of the mentee-mentor relationship between
the senior & younger generation leaders.
One study of inter-generational leadership transitions in large Indian family businesses,
traced transformational journeys to identify crucial leadership-building measures
adopted by these family businesses. The study found that -
 These next-generation members followed a systematic development pathway, which
equipped them for the leadership role.
 In the subsequent phase, they went to world-class institutions to obtain a business
management degree, which equipped them with knowledge of strategic
frameworks & leadership capabilities.
 These leaders were exposed to the family business & its operational challenges at an
early age i.e. after their graduation; they joined the family business at the middle
management level. They gain experience in business operations & developed an
understanding of ground-level challenges.
 They also learnt manpower management & interpersonal skills.
A critical part of this journey was the work experience they gained in large
international organisations after obtaining their business degrees. Working outside the
comfort-zone of their family business made these next-gen members independent
decision-makers. It built their leadership strength as they had to prove their
capabilities & bear the consequences of their decisions. After 2-3 years of working
outside, they joined the family business at the senior leadership level.

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During this phase -
 They worked closely with family & non-family mentors.
 They understood the strategic & leadership challenges of the business.
 They became effective change agents, improved legacy systems and practices, and
led their business to the next level of growth.

Proving their leadership mantle within & outside the family business, with diverse
work experience in India & abroad, these next-gen members earned respect &
acceptance from internal & external stakeholders. In a span of 5-8 years, they took
complete leadership charge. The senior generation leader then stepped out of the
executive role & continued to provide strategic guidance.
 For succession to be effective, the next-gen members must have the ability &
willingness to take on leadership responsibility. This can only happen when they are
equipped with a wide range of knowledge, experiences & capabilities.
 Structured training & outside work experience play a very important role in
leadership development. Business families that plan early & take timely measures
to groom their next-gen members can implement effective intergenerational
leadership succession.

End of Unit - 5

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