The wishes of many business founders are to pass their business onto the next generation. However, this is rarely achieved in a manner that sees the successors take the business forward to greater success.
In recent weeks we have seen one Australia’s largest family conglomerates put in place a family succession plan with the announcement that Lachlan Murdoch has been promoted to non-executive co-chairman of both the publishing business News Corp and the entertainment business 21st Century Fox (Fox).
Industry experts believe this is clear evidence of Rupert Murdock’s desire to ensure that his business interests are passed on to his children.
James Murdoch also has a prominent position within the Rupert Murdoch Empire with his recent promotion to co-chief operating officer at Fox.
With an empire as large as Murdoch’s, success planning has not been easy. Murdoch has faced challenges from both investors and his ex-wife. It is said that investors are seeking to loosen the family’s grip on the business, insisting that the Murdoch brothers prove their ability to increase earnings. Additionally, his children with Wendy Cheng may have right to some fo his estate.
This succession plan still has a long way to go (Rupert Murdoch very much retains control and decision making of his interests) and the media will watch it unfold closely. However, it provides a reminder as to some of the issues and pitfalls that a business owner can experience when handing their business on to the next generation.
Problems commonly experienced include:
- Who in the family should take over the business and what are the issues for the other siblings. Choosing just one successor may cause conflict if others are equally interested in taking over.
- Does the appointed successor have the necessary skills and commitment to take the business forward?
- How will their elevation impact on other non-family members of the business?
- How will you transfer both ownership and management to the next generation? Often children are not in a position to afford to purchase the business from their parents yet the parents need the capital to fund their retirement.
- If you have a blended family, what conflicts may ensure between surviving step-parents or siblings and the owner’s children from a prior marriage?.
Often these issues do not surface until after the passing of a controller of the business and the responsibility of ownership and management has passed to the children. While the parents are alive, potential conflicts between children will often be bypassed simply due to the controlling influence of the parents.
To ensure a smoother transition, when planning for succession in a family business an owner should consider the following:
- Ensure that children spend time working outside of the family business developing skills and learning in a different environment. Going straight from school to work in the family business can often be a recipe for disaster.
- Ensure that your successor earns their role by putting the time in and gaining the required experience. Don’t just hand it to them because they are family.
- Establish a board of non-family members or ensure non-family members are in management positions to provide an objective opinion.
- Have open communication with family members involved and not involved with the business.
- Seek professional advice.
In our experience when succession planning is proactively and carefully managed; the hand-over of a family business can be a very rewarding and satisfying experience for all concerned. Get it wrong, and a lot of conflict and heartache can ensue.