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Corporate Governance
A Roadmap for Succession in Family Businesses
Pueyo, R.;
Tàpies, Josep
; Anitua, Javier; Goenaga, Pedro
Succession planning is crucial for any family business; after all, firm survival may depend on it. And most large family businesses in Spain are aware of this, with three out of four addressing succession issues within the previous 12 months in their search committees or similar bodies at the board level.
This is highlighted in a new study on CEO succession in family-controlled firms in Spain, prepared by KPMG, Russell Reynolds Associates and IESE, and featuring the collaboration of Prof.
Josep Tàpies
, holder of the
IESE Chair of Family-Owned Business
.
Despite the acknowledged importance of this issue, more than half of the companies consulted (53 percent) do not yet have a defined succession plan. This deficiency is especially marked among private entities, where nearly nine out of ten have no plan in place. In contrast, three out of four publicly traded companies have a medium-term succession strategy.
A Succession Plan in Six Steps
It's not just
who
will take the reins that needs to be decided, but
how.
The study suggests following these six steps:
1. Align owner interests.
Family members with ownership stakes must reach agreements re: their expectations for key company matters -- such as, familial incorporations to the board or to executive positions, CEO selection, profit reinvestment, sustainability, capital increases, dividend distribution, alliances/partnerships, and risk tolerance. These agreements should be put in writing and cover the short, medium and long term.
2. Define the firm strategy and skills needed to achieve objectives.
It is essential to define the characteristics of the ideal candidates for leadership positions according to the company's needs. Being clear on objectives will help establish the key competencies that the board of directors and the CEO should possess. As Professor Tàpies points out, the qualifications of the top executive of the family business "cannot be improvised."
3. Identify and evaluate internal candidates.
Up to three internal candidates to succeed the CEO should be identified in order to establish development plans for them. According to the study, 57 percent of companies with succession plans have neither identified multiple internal candidates nor defined the preparation and training that their next CEO needs.
4. Prepare a list of external candidates.
Regardless of how good the internal candidates are, it is advisable to have a roster of possible external candidates. Eight out of ten companies in the study consider it wise to have people outside the family in a top position within the company's governing body, but 75 percent admit to not having searched for any candidates.
5. Track the candidates' progress.
Succession plans evolve over time. It is vital to assess the development of internal and external candidates and their alignment with the company's goals at least once a year.
6. Ensure that the selected candidate's integration and performance meet expectations.
The more information and tangible evidence available on each candidate, the easier it is to make good decisions. There are tools that help evaluate competencies, minimize risks and facilitate new leaders starting out in their new role.
"If the person who takes over does not have the particular sensibilities required to work for a family business, the initiative is not likely to succeed," says Josep Tàpies. When the time comes, Tàpies adds, it is important for the CEO to be replaced in "an orderly, unhurried and smooth transition."
Methodology, Very Briefly
The study is based on a survey of about 20 large Spanish family businesses, conducted from July to September 2017. Forty percent were publicly traded companies (included in Spain's benchmark index, the IBEX 35) and 60 percent were privately owned businesses.
This article is based on:
La sucesión del primer ejecutivo en la empresa familiar
Publisher:
KPMG; Russell Reynolds Associates; IESE
Year:
2017
Language:
Spanish
Download Spanish
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Pueyo, R.
Tàpies, Josep
Anitua, Javier
Goenaga, Pedro