We explore what succession planning is and why it is important. Campden Wealth issued the Global Family Office report highlighting that businesses are not prepared to handover the reins to the new millennials – why is this? What lies ahead for the private wealth sector as trillions of corporate empires established by baby boomers are now about to be handed over to the next generation?
What is Succession Planning?
Smart succession planning is essential to a family business for various reasons. With the right plan in motion, it triggers growth in a family’s existing business operations and fortune.
How are succession plans put into place? This is undertaken in three ways when leadership handover is in motion, namely:
- Finding a buyer for the business, dividing the proceeds between children or other beneficiaries.
- Allocating assets or business units equally amongst children which are dependent on how vast the family business is.
- Allowing a gradual transition of ownership to one or more heirs, who have different responsibilities.
It is believed that a third party’s involvement in succession planning matters offers room for objective thinking and mitigates conflicts. Which is why it is quintessential to engage an experienced wealth management adviser or fiduciary service provider who has experience supporting affluent families through these changes.
Choosing A Successor
This aspect is very crucial and several criteria should be considered, such as;
- Should the company’s next leader be a member of the family, or an external party?
- Is there an obvious choice for the successor between existing family members?
- Are there any conflicts of interest to look out for, or any personal obligations that may affect this person’s ability to look out for the business’ interests?
- Could sibling rivalries become a factor in the decision?
- Does the next generation want to keep their parents’ legacy within the family, or divest the assets and use the proceeds for other ventures?
Bridging The Gap
The age and mindset gap between millennials and baby boomers have to be bridged when selecting the right successor.
The current leader and successor need to share the same values despite having different point of views.
A shared set of values across both generations can go a long way in determining the stability of the family’s wealth and this can only happen if the family and other stakeholders are knowledgeable of these differences as well as willing to set them aside for the family wealth to flourish.
Read more: Where is the money? Asia will be the fastest growing wealth hub in 2025
Recent Findings by Campden Wealth
In a survey carried out by Campden Wealth with 47% of International Families in line the majority of family office principals claimed the next generation was unprepared to inherit their family’s wealth.
On the matter of how ready the next generation was to take-on the family business, the survey stated 29% were somewhat unprepared for future succession and 18% were very unprepared for future succession. 31% of principals said their next in line to the family wealth were not well equipped to handle the family business. This was notably the case in the Gulf-Region and Asia, specifically in China.
When exploring what were the reasons for this lack of readiness, some included the family’s discomfort in discussing sensitive matters (37%) and failure of the heir/heiress to establish control over the newly inherited wealth (33%) due to their predecessors’ controlling attitude.
Experts insights on Succession Planning
Experts in the field of wealth and family business were asked their feedback on the report’s findings.
Alfredo De Massis, Professor of Entrepreneurship and Family Business at Free University of Bolzano (Italy) and Lancaster University Management School (UK) stated that the results of the survey were intriguing. He added that being wealthy should create a sense of awareness in families on the importance of educating and training the next generation.
According to De Massi, the Campden Wealth findings exposed the low levels of willingness in the older generation to release control of their family’s wealth, negatively impacting the next generation’s ability to assume succession.
Taking just Europe into consideration, De Massi noted that the succession issue could not be ignored because there was an increasing wave of generational wealth transitions that were impending. About, 45% of family leaders are over 60 and the generation of baby boomers who founded their businesses in the 20th Century will soon have to hand over to the next generation of millennials.
De Massi highlighted that succession planning is now coming centre-stage as family offices are paying more attention to matters beyond the primary wealth and finances of the familyto more peripheral aspects such as leadership and succession.
Professor Denise Kenyon-Rouvinez, Chief executive and Founder of Gen10 SA mentioned that in her experience with families, discussing sensitive matters such as wealth topped the list in both family businesses and office segments. She stated, “I also find a very high level of discomfort discussing wealth or even worse the level of wealth.”. However, she wondered if those 54% of families who said they had a succession plan fully understood the concept and implications.
As more companies begin to transfer control to the next generation, succession planning becomes an urgent and pertinent matter. It is no longer a founder’s afterthought but his/her priority.
Considering ‘70% of wealth is lost when transferred from the wealth creating generation to the next, and 90% is lost after that’ – there is no time like the present to put actionable succession plans into place to protect the wealth that has been created over years of hard work and ensure its proper management for generations to come.
