Training the next generation for succession

Training the next generation for succession

Training the next generation for succession is key to maintaining smooth sailing under a change of captain

THE generational change in business is likely to be one of the riskiest times in any company’s evolution.

Just like management change, new people moving into a business creates uncertainty in staff, suppliers and ­customers unless managed well, and in advance.

This uncertainty is one of the reasons that more entrepreneurs engage external management to run the business — if the ultimate aim is to sell the company or to set it up for further growth (or even a prospective listing).

When one generation of owners moves on, the next generation will have its own ideas about who should run the business and how the ­future should be managed. But they must be careful, ­especially if they move in to run the business alongside a long-term management.

“Most times, they’ll stuff it up,” David Smorgon, one of Australia’s foremost experts on family business and executive chairman of PwC’s Family, Business & Wealth practice, says.

“It’s a question of clarifying what hat you wear. Family, owner or business? And in family business, people regularly forget which of those they are.”

The point here is that members of the family who might inherit the business are not the current owners of the business. So if a family member tries to impose control over a management team that has helped build the business, there is plenty of room for conflict.

As Smorgon says: “Succession is a process and not just an event. You have to start with these things 10-20 years ahead of time. They have to train the family well in advance.”

Especially in highly technical businesses, or those with key clients, family has to be careful that it does not ­antagonise the professional management that has much of the company’s intellectual or market intelligence.

“Often there’s a deal,” Smorgon says. “The family might have to sell some equity to keep some control or do a deal so the managers can buy them out. Today there is so much money floating around, a management team can often get funding from outside. It becomes a meltdown and nobody wins.”

In these cases, the older generation has an obligation to ensure there’s a plan to maximise the business value ready for succession.

AUGUST 31, 20156:45PM

Financial expert Ross Greenwood.The Daily Telegraph
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