In family farming concerns, succession planning is seldom part of a business strategy. Yet it is crucial to ensuring a smooth transition from generation to generation, and the ultimate sustainability of the operation. So says André Diederichs, CEO of the Family Business Association of South Africa.
Diederichs stresses that a succession plan should be drawn up in good time to ensure continuity, should the current owner/manager retire or find it difficult to run the business.
He warns against the misconception that the firstborn child, or the firstborn son in particular, should automatically take over the reins, as he or she may not necessarily be the best choice to lead the business. The main objective of a family-run business is to create wealth for the family; it thus makes sense to choose a successor that clearly has the capability to do this. It might even be wise to appoint a successor (or CEO) from outside the family should family members be unable or unwilling to take over. The successor has to remain accountable to the family at all times. Moreover, he or she should be exposed to the company’s decision-making process from early on to learn the ropes while still under the guardianship of the current management.
“Parents can no longer afford to keep their last will and testament a secret. All family members should be fully informed about what the future holds to ensure a smooth transition from one generation to the next. If family businesses fail to plan for succession, they plan to fail,” warns Diederichs.
SAFEGUARDING THE BUSINESS
Sound governance structures are no less important, he emphasises. “It’s important to safeguard the business against the emotions of the family. The family business’s constitution determines the long-term vision, values, family and business objectives, as well as the rules for succession,” says Diederichs.
Ahmed Badrodin, a senior legal adviser at FNB, says the proverb ‘from shirtsleeves to shirtsleeves in three generations’ describes the common three-generation cycle of failure of a family business.
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October 30, 2020