Many are familiar with the often-repeated statistics of 30/15/10 and 30/13/3 or any similar permutations, in reference to family-owned businesses, FOBs, surviving the first, second and third generations.
These statistics, along with unsupported views of FOBs, are used to justify many of the long-held myths, perceptions and approach to family business succession, even to the point of adopting a self-defeating mindset. Expressions such as the following are typical among many owners of family businesses in the Caribbean:
o Son, this business is not for you to come back to, it’s a family business, and you know what they say about family business;
o Succession planning? What’s that? This business starts and ends with me, as soon as the children get their education;
o Mi and mi wife have only one daughter, so there is no plan to go beyond our generation. That was always the plan, anyway;
o Passing on the business to the next generation is a recipe for disaster. My five children would get a each other’s throat every day; you know what they say about family business;
o I have family members interested in ‘carrying on’ with the business, but none of my four children want to, so I don’t know what succession we could be talking about; and
o Succession planning does not make sense because family businesses are not accepted by many of those who ‘call the shots’.
Many of the foregoing are linked to one of the myths of FOBs, that they won’t last, fuelling the speculation that family businesses will fall by the wayside as the capital markets grow. Empirical data has shown this not to be true.
The list of FOBs across the English-speaking Caribbean is a testament to the continued positive contributions to economic development of Caribbean countries. In the case of Jamaica, data from 2004 showed that revenue generated by FOBs was equal to approximately 32 per cent of the country’s GDP or economic output. It should be clear from this that the cost of having poor or no family business succession will prove to too high for Jamaica.
It is therefore critical that early intervention is made to minimise or help to erase the myths and perceptions that are standing in the way of effective FOB succession.
Providing some basic guidelines to planning for family business succession is a good starting point. This is important because deeper discussions with owners of family businesses reveal that many do not know where to start in the process.
Leaders of FOBs need to understand that this is a process, and that any effective family business succession takes time and will not happen overnight and without deliberate planning. Such a process must consider the dynamics associated with the family and the business.
As part of this process FOBs need to: put governance business structures in place (such as a family business constitution or family council); take the time to understand the need for and to acknowledge the necessity of having a formal plan for succession; identify, (as early as is practicable, members of the team who are or can be considered for successor (who does not have to be a family member, although that’s the preferred choice for most); obtain an independent valuation of the business (knowing the value of the business is important, especially at the point of final transition); establish and accommodate clear channels of communication on family business related issues; organise and execute ongoing training sessions covering elements of family business succession engaging external facilitators as needed); and engage the relevant professional input to document the details relevant to estate planning.
While the foregoing might not be considered an exhaustive list of guidelines to family business succession, it provides a sufficient framework in the process of helping leaders of FOBs to debunk the myths and perceptions that seek to impede the process. FOBs that strive to abide by these guidelines stand on a solid foundation in having an effective and successful generational transition.
Lawrence Nicholson, PhD, is a senior lecturer at the Mona School of Business & Management, University of the West Indies, author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family-Owned Businesses and a director of the RJRGLEANER Communications Group.Email: firstname.lastname@example.org