Challenges of Succession Planning in Family Business

By on September 20, 2012

Family businesses have a significant presence in the global economy. Family businesses are owned and managed mostly by the members of a single family and the control therefore lies majorly in the hands of family. Family businesses possess a unique feature of combining family and business together which render unique benefits but at the same time confront them with unique challenges also. Looking into the history, family businesses are generally short-lived and fail to survive beyond second or third generation. The primary reason in most cases being the lack of succession planning. Succession planning creates a leadership pipeline in the business and there is never a situation of stagnation when the owner retires or dies. Lack of succession planning has often resulted into sibling rivalry leading to family clashes and splitting up of the business. The scenario has however changed over time and family businesses throughout the world have realized the importance of succession planning.

The challenges of succession planning

Succession planning is integral to the survival of a family business but there are several challenges involved in planning for succession. Let’s discuss them one by one:

  • Emotions Involved

One of the most difficult challenges in succession planning of family businesses lie in the emotional involvement of the members. Though everybody knows the owner’s death is inevitable yet nobody likes to discuss and plan about it. Thus, succession planning is a very delicate issue and is often avoided.

  • Patriarch Culture

As far as Indian scenario is concerned, here the society observes a patriarch culture and therefore it is assumed that once the current owner retires or dies, the eldest son will be the heir. But the problem arises when he is incompetent or incapable of managing the business. Harsh decisions need to be taken and many times this gives birth to sibling rivalry.

  • Unwillingness towards Family Business

The youth today believe in making their career decisions themselves. So children in the family business may have varying career aspirations and may not be willing to take over the family business as their profession for life.

  • Clashes for Control

Everybody in the family wants to occupy dominant position in the business and it many times results into family clashes. The desire to control the business among siblings is one of the important challenges in family businesses. When the family is large and there are many members competing for the same position, succession planning becomes very difficult because of the involvement of emotions.

  • Outside Talent is Limited

In most family businesses the top management positions are occupied by family members. It makes them unattractive to larger talent pool of job seekers available outside the family. The choice for successor while doing succession planning is therefore very much restricted in family businesses.

  • Negligence of Formal Training

A large number of family businesses are often seen neglecting the need for formal education and training of the prospective successor from the family. They ignore the fact that succession planning should be done at an early age and the successor should be provided with on-the-job training. This results into incompetent successor.

  • Unprofessional Attitude

It is also observed that family businesses often adopt a very unprofessional approach towards succession planning. Most of the family firms either do not do any kind of succession planning or even if they do, they hesitate to discuss the issue of succession and keep it a strictly confidential matter. But this many times lead to making wrong decisions.

However, the scenario towards succession planning is changing fast and today it is one of the priority concerns of the family businesses across the world.