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Effective SME Family Business Succession Strategies

Fred Burke, C.G.A. - Chief Operating Officer, Intercorp Excelle Incorporated

1880 Ormont Drive, Toronto Ontario, Canada M9L 2V4
Phone: (Canada code 011) 416-744-2124

Fax 416-744-9083

Email: website:

During my business career, Ive had the opportunity to work within well known multinationals,
including one of the worlds largest privately family run Consumer packaged goods companys, Mars
Incorporated. For the past six years, as Chief Operating Officer of a medium sized family run business,
Intercorp Excelle Incorporated, Ive now seen first hand, entrepreneurship flourish at the grass
roots level as well. I believe that there are many similarities in the way the largest and smallest of
these entrepreneurial organizations achieve success, and effectively manage their company so that they
may pass them on to the next generation.
How can an effective planning process be used in family-run entrepreneurial organizations? Very few
family-run companies are successfully passed on to the second and third generations, primarily due to
ineffective succession planning and a lack of an agreed strategic vision. In fact, less than half of viable
small and medium sized businesses are able to survive past the first generation. Implementing an
effective plan will protect the companys culture, ability to successfully implement the long-term
strategy and smooth transition phase necessary to pass control to the next generation.
Aim of this Study
The goal of this paper is to clearly understand the key elements within the effective succession plan,
focusing on small family-run businesses. There exist specific enablers and defined processes starting
with a business case which identify successor candidates based on leadership capability and
organizational continuity. As well, this paper identifies strengths and weaknesses dealing with
challenges of implementing a successful succession plan.
In addition there are a number of questions which must be dealt with in order to fully comprehend the
complexities of various succession strategies. A well defined succession plan must deal with;

1) Identifying the most capable person to manage the organization at some predetermined time
in the future.
2) How to attract and retain talented family members and employees who can effectively manage
and grow with the business.

3) Managing change and transition in culture within the organization so that numerous pitfalls
are avoided.
4) How to enable retiring beneficial owners to satisfy ongoing involvement and income needs.
5) Understanding the role of a Board of Directors or Advisors in the succession plan strategy
and effective estate planning.
Approach and Methodology
The diagram below presents the five pre-dominate stages to a succession planning methodology.
Surrounding the various stages are on-going enablers, such as a well defined and effectively
communicated strategic plan, leadership support, competitive compensation and high-level
performance management tools and processes. Succession planning is a board governance function
and on-going responsibility, focusing on senior level leadership positions deemed to be critical to the
future operations of the organization. The combination of these key enablers will drive organizational
and leadership continuity - necessary elements of organizational success.

On-going Enablers: Well Defined Strategic Planning Process

Business Case
for Proactive

of Target
Target Roles
and Positions

and Skills

Of Successor


and Leadership

On-going Enablers: Leadership Support - Performance Management

Stage One: Understanding the Business Case for Proactive Succession Planning
Recognition that there is a need for a business case is a very critical first step. Many entrepreneurs
believe that their business encompasses both personal and professional life, their vision, and their
passion an extension of themselves. As such, especially in the infancy stages of business
development these entrepreneurs honestly feel that they will nurture and grow their businesses until
they are unable to do so. For the most part, they welcome their children into the business based on
trust and a sense that their children have or will gain the same level of passion as themselves. They
believe that the business will automatically transition to their children at an undetermined time in the
future when they are unable to carry on and the need to pro-act or plan this transition is not
required. Perhaps it is the fear of facing a point in time when they are unable or unfit to carry on.
Stage one therefore requires the entrepreneur to articulate a clear vision and company mission which
envelops the culture and values of the business. This mission statement is the foundation for
developing a strong strategic planning process which incorporates the development of a longer term
business plan. Requiring the entrepreneur to envision where the business will be five, ten and twenty
years into the future creates a situation which necessitates decisions on required organizational
structure and effective leadership. This also focuses creative debate around assessing the degree to
which the owners retirement and attrition issues will impact on desired business objectives.
There are numerous considerations in order to build a business case model which ideally will work for
the business owner. Factors which must be considered for perpetuating a business include:
1. Understanding the industry sector, market share, competition and barriers to growth.
2. Long term business strategy for growth and required investments in capital and infrastructure.
3. Interest and desires of other family members involved in the business currently and their
potential involvement in the future.
4. Age, experience and education of the beneficial owners and family members.
5. Independent business valuation and potential to increase brand equity over time.
The Organizations Strategic Planning Process
The need for a formal strategic planning process and succession plan are integrated elements of family
business success. Formalizing a mission statement is a key first step for the beneficial owners in order
to clearly articulate and communicate the vision, culture and values desired throughout the entire
organization. Many entrepreneurs will suggest that a written mission and value statement is not
necessary however completing this task ultimately commits the entire organization, including family
members to accept and implement that vision. Ultimately the strength of the strategic planning process
directly impacts on the transition of the business to the next generation at some point in the future
based on their commitment to the business plan and development of the envisioned culture. This also

reduces the risk of family differences in what direction the business strategy should go, since those
issues usually are sorted out in a healthy, structured analytical debate in the preparation of a business
The creation of the business plan is a total company effort, usually involving all family members and
senior management identifying key roles, responsibilities and organizational structure.


successful organizations the planning process is an ongoing business activity. The business plan is
reviewed annually, modified if necessary and validated against the long term vision and values of the
companys owners. The business case model for succession planning differs from the ongoing planning
activities in that it occurs at certain points in time when the family business has either reached a
certain critical mass or family members become interested in working in the business and express a
desire to develop their careers with the organization. These situations necessitate consideration of
organizational and leadership continuity. Input from all aspects of the business plan strategy is
necessary in order to develop a realistic business case for succession planning.
Stage Two: Identification of Target Roles and Positions
Organizational resources required to support the business plan represent a key step in the process. The
second stage of the model is aimed at identifying the critical workforce segments within the business.
It is important to recognize that this should not be based on slotting people into specific roles or
responsibilities (i.e.: developing roles for key employees or family members). Rather it is an
assessment of particular resource requirements necessary to achieve business plan targets. The
objectives of Stage two are to review current and future talent requirements. A key aspect of the
review is in identifying key positions required at various stages of the business plan growth initiatives
which may or may not exist presently. This stage also set priorities among the various key or at risk
positions identified.

Role of the Board of Directors or Advisors

The earliest stage at which external management experience and expertise is injected into the
succession planning process, the more apt that plan is able to fit with the business plan.


independent viewpoint act as a reality check or steering mechanism in the process to ensure that the
right organizational structure is in place to enhance the business ability to succeed through the
transition phase. This independent viewpoint also reinforces the need for timely succession planning,
as well as structured estate and tax planning. A succession plan strategy and its implementation are

most effective when facilitated by independent counseling from a number of sources and tempers the
emotional issues usually faced when planning family transition.
Stage Three Core Competencies and Skills
Once key, at risk positions are identified in the business plan, core competencies and skill sets for
each necessary to perform successfully in the target roles must be identified. This will provide a
baseline for assessing performance, and gaps within the current workforce including family
members. It can also serve as a framework for future recruiting of talent required to meet business
plan strategic goals and key objectives. By focusing on the broader organizational requirements of the
business, it will become must clearer for the entrepreneur and family members to assess where
developmental gaps exist and if there is an interest from family members to gain the necessary
skills and competencies required to fill those key positions.
Balancing Business and Personal needs within the Family Business Enterprise
A major element of the succession planning process is to identify individual family members outside
needs and activities with those of the organizations. In order for family members to be considered for
key positions or as successor candidates there is an inherent commitment to develop the skills and
competencies necessary over time which meet the business needs at some point in the future. This is a
complex area which involves a number of interrelated actions including trust and confidence,
delegation of decision making, personal sacrifices in order to learn the business and assuming
leadership roles and responsibilities.
Key family members involved within the business must be treated as equal employees in order to gain
respect from non-family staff members however they do have other responsibilities over and above
just assisting in executing the vision. They must also develop new innovative ways of working
together based on changing circumstances. They must transition into new and different roles in order
to gain a broad business sense, and get involved in corporate policy and strategy as integral members
of the board of directors or advisors. In this way, they become acutely aware of the business needs
and key position roles determined in Stage 2 and Stage 3. Family members must be fully informed,
involved and have access to opportunities in order to develop an effective succession strategy.
Stage Four Identification and Assessment of Successor Candidates
This stage of the model involves the identification and evaluation of potential candidates, which often
requires the assessment of both internal and external individuals. The business case establishes
strategic direction and performance measurements required to lead and guide the organization

towards the delivery of those strategic goals. Stage four also involves the development and
implementation of a rigorous, competency - based performance management process to identify high
potential candidates within the organization. If potential candidates, including family members are not
identified through this management process then a reliable and fair selection process for searching out
external qualified candidates may be necessary.
It is imperative that the family work with an outside expert during these stages of developing the
business case. They will greatly benefit from the presence of an experienced sounding board and
communication facilitator who can control family emotions in this critical stage. Sharing this
information with all family members openly is very important, so that they fully understand that there
is no free pass as the successor candidate and that they must possess the necessary business and
educational qualifications, just like any other applicant.
The importance of a Positive Work Environment
The culture of the organization must be well defined and consistently reinforced. It must recognize
and reward current employees and family members equally, train and promote from within while
attracting new talent and knowledge to the organization based on an accepted and pre-determined
business strategy. There is a strong argument that leaders are not born, rather that they develop over
time by learning new skills and competencies. Family members be given the opportunity to discover
there natural management styles and understand the differences in their personalities and business

Identifying whether one family member has the ability to acquire those skills and

competencies necessary to lead the organization as the successor candidate is the key outcome of the
succession plan. A family member may be identified as a potential successor candidate but may not
want the responsibility, whereas another may desire to be the leader, but does not want to invest the
time to develop the skills and competencies necessary in order to be effective.
Stage Five Developmental Programs
This final stage of the succession planning model consists of a review of current and required training
and development practices. The objectives focus on ensuring that potential successors are receiving
sufficient development opportunities, including formal training internally and externally on an ongoing basis. This training should involve independent feedback, job development opportunities and
formal evaluations of progress, special assignments and projects in addition to a formal mentoring
Part of the ongoing training and development activities once a successor candidate has been identified
during stage four, should consider accepting positions outside the family organization and
environment for a period of time. This experience is invaluable to the candidate who is able to develop

business experiences outside the comforting environment of the family business. The identified
successor can assess different cultures and values, new mentors and innovative ideas eventually
bringing those experiences back to the organization.
On-going Education and Personal Development
The most crucial step of implementing a successful succession strategy involves on-going formal
feedback and assessment. In addition to in-house training, external team-building exercises and
regularly scheduled family retreats become critical in developing the succession strategy. The
knowledge the can be gained from a family retreat session can teach the family how to successfully
manage the delicate relationship between family and business. The education and learning experiences
should be very broad ranging from general management and leadership instruction, assessment of
diversification opportunities and specific evaluation of business practices, to wealth management,
family investment strategies and even parenting skills. Through these ongoing interactive sessions,
participants understand better what their needs and desires are versus those of the owners and the
business. They also gain consensus on identifying the skills and competencies of a successor candidate
and whether that person is a qualified family member or external candidate is a decision made in the
best interests of the business and maximizing value.
The Desired Outcome: Organization Continuity and Leadership Capability
If the succession plan strategy suggests that leadership of the business should transition to a chosen
family successor, this may necessitate a longer transitional period before that leadership role is actually
assumed. In many cases the outcomes of stages 2 and 3 of the succession planning model will
determine that key positions will be filled through an external search for talented non-family
executives allowing family members to develop and grow in the interim period. Therefore, the actual
succession planning process is initiated well before the beneficial owner is contemplating retirement.
In other cases, the succession strategy process determines that non-family members desire to remain
actively involved in the business beyond the time that the entrepreneur wants to transition out or retire
from active leadership. This suggests a number of options exist hiring talented outside management
to run the day to day operations for the family and generate an ongoing income or dividend stream, or
divesting of the business at the right strategic time in order to obtain maximum value for the
shareholders. It is best not to force family members to choose the family business as their vocation.
They must explore and develop their own talents and make their own decisions. They must feel the
passion for involvement and if they choose to enter the business at some point in the future after
exploring other business opportunities then the company will greatly benefit from their outside

In either event, this is part of a well thought out business case which has considered all aspects of
organizational continuity. Business ownership has always been about created wealth and value for the
shareholders, and if this is accomplished without the need to transition leadership to the next
generation then the right decision has been made.
Concluding Remarks
Succession Planning is most likely one of the most complex, emotional business issues family
organizations will face. A successful strategy involves acceptance of an agreed process and effective
board governance. The succession strategy must be developed in conjunction with an agreed business
plan and needs to be balanced with ongoing organization wide planning. There are on-going
enablers which assist the business owner in developing the business case for proactive succession
planning. Input from independent board advisors and experienced outside experts who facilitate the
process is absolutely necessary so family members can openly share and understand the necessary
qualifications of a successor candidate and express their willingness and desires for continued
involvement and commitment to the family business.
The involvement of all family members, whether involved directly in the day to day operations of the
company or not is critically important as the succession plan is implemented. The underlying business
strategy is determined through a formal vision and mission statement which is reinforced through a
strong well-defined culture and organizational values. Each stage of the succession planning model
must be fully analyzed and debated. The end result of all this strategizing and communication is to
mobilize all employees in addition to family members and the beneficial owners in order to create
synergy and organizational continuity.

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