This edition of “My Family, My Business,” an excerpt from PwC Nigeria’s NextGen podcast series, spotlights succession planning. The conversation, hosted by Esiri Agbeyi, PwC Africa Family Business Leader, features Clare Stirzaker, Partner at Boodle Hatfield LLP, a law firm in Mayfair, London.
“Succession planning is about retirement, and I’m not ready to retire.” What do you think about this nugget?
When we talk about succession planning, retirement is obviously part of that, but for me, it’s really about thinking about the needs of the business, and ensuring that the business keeps going in the event of something happening to one of the key leaders.
I tried to reframe some of these discussions around business continuity and what needs to happen to make sure the business keeps on running. Retirement is one factor that could impact business continuity, but it may not be the only factor.
For some clients, recognising that if retirement is not what they want to deal with anytime soon, then how about a change in roles? If there’s somebody who is really involved in the business, can they just start to step back into more of a non-executive role, for example, more of a chairman role? It’s just trying to reframe the discussion in a positive way and recognise how important work is to people’s lives generally.
From what you’ve just shared, succession planning isn’t a one-time event, it has to be planned for. What are the most intriguing lessons that you think have given successful succession historically?
What I love about what I do is learning about the stories behind these family businesses, particularly where they’ve lasted for multiple generations. I’ve worked with family businesses that seem to get succession right and one of the key ingredients has been celebrating the story of their business so that the family and future generations connect with it in a more emotional way.
Having that emotional connection is key, and that’s why I try to encourage people to focus on the stories. I remember one family business I went to, they had pictures of all the staff on the wall, who played a part in growing the business; not just family, but non-family, connecting with their tales and the role they play in that business as well as the tale of the business itself – in the past, the present, and hopefully the future.
Another insight around that would be respecting how a business, while it is really important to a family, isn’t everything. They’ve got a life outside of that as well. Although the business is a great source of wealth and potential pride and happiness for a family, it can also bring about challenges and arguments. People may not necessarily want to be involved in the business, even if they love the tale of the business. I think it’s important to recognise that too.
I like that concept of storytelling. When you talked about the wall of fame, I also thought of a coffee table book of sorts, where we tell the story of how we’ve journeyed through businesses. Is that something you also see?
Yes, families will commission writers and publishers to help them create that book. However, there’s nothing more valuable than just hearing a story from somebody directly from their mouth, that oral tradition of storytelling.
I think where families get this right often is by going on family retreats and having family away days where they’ll get the older generations to tell the story in their own words and that can be incredibly powerful. I think a book is really nice, it’s a nice reflection and certainly for advisors when we come into the offices, we’re sitting in the waiting lobby, we can look at a book and start to get a feel for that business. That’s really helpful for us. For the family, also just hearing it directly from people in that family, it’s so much more powerful.
What traditional practices have made family businesses struggle in succession planning, or what challenges have you seen in practice that makes succession planning difficult?
Generally, it’s definitely a lack of preparation. Going back to that nugget you said earlier, there’s something in there about people being slightly in denial, or feeling it’s just a really hard thing to address and they don’t know where to begin.
I think that often means there’s no preparation, no thought, lack of governance and proper communication too. Suddenly something happens, some key person passes away, and the family is left trying to work out, “What do we do? How do we run this business? Do we keep it going? How do things work in practice here? What are we meant to do?” I think that’s where it gets really challenging.
Tied into that as a theme is where people haven’t prepared. That often means they won’t have the right structures in place to facilitate that transfer. You’ve got one or two founders, maybe a sole owner or sibling partnership type model running things their way. They know how to do things, it’s relatively informal around how they run things from a governance perspective. They won’t necessarily have a board of directors, or if they do, will not have formal board meetings.
They don’t have much governance in that business, either at the board or shareholder level. I think that can create some problems in terms of how well succession will work.
Would you reckon that it takes some sort of awareness to get up to that point? Even for the founders, as much as the beneficiaries of the will.
Certainly. Since I’ve been in this business, for about 20 years now, there’s been a huge growth in materials available to family businesses around why succession is so important to get right, and how to get it right.
Start to learn and educate yourselves, to have some natural conversations in a family around this, whether it’s over the dinner table, or wherever it may be, “Where are we going with this? Are the kids going to be involved? Do they want to be involved? Do we want them to be involved? Do we want the business to carry on?” They may feel like big questions, but I think starting to have some sort of natural discussions in a family about this and learning about what others do is really helpful.
Is there a need to be more aware of building a distinction between who could take over, and who could be the successor on the family side of things, and from the business side of things?
I know culturally, in West Africa and other parts of the world, that’s a really important discussion to have. Certainly, in the UK, that’s been the case too. We’ve had almost a natural assumption: my next in line, my son primarily, or my daughter will take over the business. You’re absolutely right. Is that the right thing? Is that what they want? Are they really wanting to do that? It comes with a lot of responsibility and it may not be something that they’re suited to.
They may have skills in other areas. Often we’ve found that it’s trying to make that distinction between being an owner of a business and running a business. The owner and manager – as people characterise it – and really assessing what skills we need in the business.
To what extent can those skills be provided for by the family group? Do we have people in this family group who have the leadership and commercial skills to step into these roles? If they haven’t, are they going to be owners of that business? What do they need to be good owners of that business as well? They still need skills to kind of step into that role too but they’re slightly different skills. Assessing what the business needs is really important.
Often where things start to fall apart is when family members have been put into leadership roles they’re not suited for. That prompts people in the business to leave because they don’t have faith in their leadership skills.
It can ultimately cause your business to fail if it’s not handled in the right way, so I do think it needs some really careful thinking. Often for that NextGen, if they do want to do it, which is great, they’re going to need a lot of support, both internally and externally.
We often find that NextGen leaders will probably spend a lot more time even in comparison to a non-family business leader. They’re going through training and external experiences and education to get themselves ready for that role, so they feel they probably have to credentialise themselves even more than some of their contemporaries to really prove that they’ve got what it takes to step into that role in the business.
They will often undergo a lot more training and educational experiences than maybe others would. That’s important as part of their journey. It’s not an easy position to be in, but I think if they’re up for it, and they’ve got the skills, they can definitely achieve it. They just need the support in place.
Succession doesn’t necessarily mean it has to go to the family. Do any examples come to mind, maybe of third parties that have taken on the reins in managing family businesses, and maybe the family then comes in later? Is it a model that works?
Yes, definitely. We’ve seen lots, particularly in the UK, where you’ll have an executive team that may consist of just non-family members. They’ve got no family acting in that executive capacity.
By that, I mean, like a CEO, COO, or CFO, they’re all non-family members who may undertake this role. Then you’ll have the family members who may be acting as directors. This is where governance becomes important, you’ve got your board of directors, which could be family, or non-family, and then you have your executive team responsible for the day-to-day operation and that could all be non-family.
I think when you start to evolve your governance systems, for family, it can then become much easier to think through, “Where can I sit because I don’t think I’m going to be a great CEO? Even if Mom and Dad think I might be, I think I could be a good director, and that means I’m still involved in the company, and I’m still at the top overseeing things, but I’ve got somebody else doing the role that I’m probably not suited for.”
Can you lay out practically, what communication looks like when it comes to a succession plan?
Yes. The starting point really is thinking through your vision for that business over the long term. Is this a long-term business with the right governance in place that can succeed and be passed down into the hands of the next generation?
The second part of that then is communicating that vision and being clear to the family. If everyone feels like that’s something they want to be part of, the next question is how do we actually do that? Are we just going to be owners? Are we going to also be working in the business? If so, what support and training do we need to take on those roles? What does our governance structure look like as a whole to enable us as a family to own and manage this business successfully?
For many families, once they start this process, they’ll often bring in external people to help them and give them advice on what they think their vision is, and how they feel they want to get there.
Ordinarily, I’ll say most families will go through the process of starting to create a form of family constitution, which just sets out the key goals of the family around one. They’ll have sections dealing with roles and people.
Ordinarily, you would have some form of family constitution, but then that has to be brought into practice, and they have to make sure that what they’re saying is actually happening.
Actually, at one level there’s the thinking and the documenting, and then the next stage is actually the doing, and that all takes time. I’d say when you’re thinking about succession quite critically, it does take time. For most families that have a real focus on this, they will stick with it, and they’ll just make sure they’ve got some good external people by their side who will support them with that over the long term.
Just as we close, the final question. I know Boodle Hatfield just launched ‘Lessons in Legacy’ – https://www.boodlehatfield.com/lessonsinlegacy/?
Yeah, that’s right.
Maybe you could talk a bit about that, and some key recommendations that we could take away from that publication.
As you mentioned, Boodle Hatfield has been advising families for 300 years this year. To celebrate our 300th anniversary, we wanted to kind of reflect on what legacy means to our clients. We’ve thought a lot about our legacy as a firm and what it means to our clients. We ran a survey with a number of our clients and contacts and what’s been coming out of that is, a lot of families are really questioning actually, “Should we just pass on all the wealth down to the next generation?”
Families have been very successful and have accumulated a lot of wealth in addition to the business. They are critically thinking about, “Do we need to pass all of this down and keep on preserving, preserving, preserving?”. I think a lot of families, particularly in the UK, are looking at some of the issues in society, particularly around wealth inequality, climate change and thinking, “how can we make a difference here? How can we make sure we’re putting that to good use?
Read also: The essential building blocks for setting up a family foundation
We’re finding there’s real growth and interest in philanthropy. A lot of families now are thinking, “how do we start to give more of our wealth away?”. There’s greater interest in sustainable investments.
I think from a legacy perspective, our clients are recognising that there’s a lot they can achieve. In terms of legacy, they’re really thinking critically about how their legacy can make a difference to the world and the problems we are experiencing.
That is a conversation that also needs to be had in terms of outlining the vision, and also defining what the succession plan might look like.
Yes, and I think that’s really because if you’re looking to do more in terms of philanthropy, sustainable investments, thinking about your tax position, and how you want to contribute more to society through taxes, that’s starting to impact the design of your structures that will enable all of that to happen, particularly after your lifetime. It’s a fascinating time to be in our industry right now. There are some very disruptive challenges coming our way, which I enjoy tackling.
