Stepping back as leader of the pack

For most family business owners retiring is like cutting off an arm. But if it’s properly planned well in advance it can lead to a new role or direction for the company with the owner as still a part of the crew.

Letting go, relinquishing control and ownership of the family business, is the toughest job of all. It’s the most emotionally difficult experience of a family business owner’s life and few readily embrace it.

The reality is that six out of 10 family business owners aren’t going anywhere. The 2013 MGI survey of Australian family businesses found that 58 per cent of owner-managers said they would be working beyond the age of 65.

The family business leader has made an enormous investment in the business in emotion, time, energy and money, and unlike those entrepreneurs who develop an exit strategy from the time they set up their business, family business owners find it hard to separate themselves from the enterprise.

Not surprisingly, 37 per cent indicated that letting go of ownership and control was the biggest issue facing the business, a sore point in the family. Significantly, the average age of the owner is now 58, which raises one issue: letting go one way or another will occur. Some will die with their boots on. Or they’ll be laid low by circumstances beyond their control, like illness or bankruptcy. MGI found that about half the family business owners were looking at selling the business at some stage, the ultimate act of letting go.

Letting go gracefully would defuse tensions in families and ensure the business does not get taken over by outsiders. Clearly, the most important step for owners is to recognise they are separate from the organisation.

Craig Aronoff and John Ward, in their book Family Business Succession: The Final Test of Greatness, identify 10 steps to making the transition:

1. Establish a family participation policy.
2. Providing excellent work experience – and no succession expectations.
3. Committing to family business continuity via a family mission statement.
4. Designing a leadership development plan.
5. Having an active board of directors with experienced non-family business leaders.
6. Clarifying the business’ strategic plan.
7. Funding the parents' personal financial security.
8. Identifying the successor or successor selection process.
9. Empowering an organisational succession transition team.
10. Completing the transfer of ownership control.

It can be summed up in five steps: preparing the CEO, developing the successor, preparing the business, preparing the family and preparing the new ownership team.

Creating financial security is critical. The business owner can’t be taking home any less. This could be done in different ways, depending on the circumstances. The owner could sell their shares, and if there isn’t a share structure, they could get some sort of annuity through consultancy fees working for the business or directors’ fees. Alternatively if they own the shop or factory, they could lease it back to the business.

Family business consultant Angelo Coco says it’s a case of professionalising the business. “You are reporting their actions against budgets each month and their pay for the role just continues,” Coco says. “What happens is their pay may not increase significantly, that just stays level and flat. The person coming in gets the advantage of the bigger pay when the results increase. But the last thing in the world you want is to deflate someone by cutting their pay.”

He says the ex-owner could be given work in the business. “They have to see from the start that they will have a role and a continued role forever in the business,” he says. “They might be the ones who start working on special projects. Do we expand the business, do we acquire another competitor? You have to make it a role where they are fully occupied and using their skills.”

The business owner has to develop a new skill set, completely different from building a new enterprise from scratch. It takes a new level of energy.

To achieve that, Coco says he explores with clients and their spouses what they want out of life, besides money. With less time at work, many of his clients throw themselves into charitable work, or go out volunteering. Many work with community groups or some even set up their own charities. They all end up saying they’ve never been busier. “Their business is the source of money for them to do their hobby or their philanthropy,’’ he says. “They then take this up with passion. The business was the vehicle to get them there. But they still want to keep an eye on the business because it’s still their baby.”

All this, he says, takes five to 10 years of planning going through the 10 steps. But that means they have to start early. They could start in their 50s: now that people are living to 85 and 90, that’s quite young.

Family business consultant Lucio Dana says that while some family businesses give planning two years, “the successor must be really ready and often that’s not the case.”

He says letting go can only happen under three conditions:

1. The owner manager has to be willing.
2. The owner-manager needs to have a willing and able successor available at the time of the relevant succession.
3. The plan has to be backed up and supported by the family members.

“Those three elements go a long way to achieving a useful succession and persuading the owner manager to let go,” Dana says. “The three magic words are desire, feasibility and acceptability.”

And the biggest step: overcoming the lack of separation between the individual and the business. In order to let go, they have to get a life.

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