Regardless of what area of the world you examine, family-owned businesses are an integral part of the economy and society. Jobs, economic stability, and societal values are supported by these businesses that are built and shared with the communities they serve. Despite the prevalence and importance of these companies however, succession of these businesses from one generation to the next is complicated and not always successful. In fact, a recent study by Deloitte indicated that fewer than 30 percent of family businesses survive into the third generation of family ownership.
This same study found that, “While a strong succession plan can help align short- and long-term goals, many family businesses have not invested the time to create formal plans.” In addition, based on the nearly 800 companies interviewed worldwide, part of the problem in long term succession success is a result of family business leaders focusing on strategies with a two-to-five-year time horizon. This approach makes businesses be more vulnerable and reactive in their response to events as they happen.
The longevity of a family business requires the delicate balance of keeping family members committed and involved in conjunction with the support and development of non-immediate family members. There are a number of ways to ensure your business is most likely to be successful in its succession for years and generations to come.
Identify, abide by, and clearly communicate your values
For THP, our company’s values are solidly built upon the foundation of our family’s values. There are principles that – as a family – have been ingrained in our upbringing and in the way we conduct our lives. Translating those principles and values into our business processes has always been an integral part of its establishment and remains a critical part of our culture to this day. Having clearly understood and defined values sets expectations for everyone involved in the business. At THP, we understand the need for enduring core values that guide the direction of the company. These help companies to achieve and refine their goals by embedding them into every employee who walks through the door.
Plan for sustainable development
Nothing stays the same – everything changes. When you don’t adapt or plan for change in the future, you welcome disruption and future collapse. As Deloitte found in their report, too many family businesses are short-sighted in their goals and strategic planning; they aren’t planning for the future evolution of the company and the up-and-coming generations. “Like any enterprise, a family business should have a clear sense of direction: without it, a business risks being consumed by the accelerating pace of change and disruption. The challenge is to maintain that sense of direction throughout the company’s ongoing adaptations to the needs of the day—making sure that the path one chooses still leads to the desired destination.”
My father has understood the importance of a long-term strategic approach from the beginning. THP has set its goal on building 100-year-old brands and becoming a top 10 company in Asia. These are goals that take time and years of development to achieve. Because it has been a focus from the beginning, we are well on our way. We celebrated our quarter-of-a-century mark last year and are invested to make this commitment a reality.
Formally address succession in the family business and define what “family” really means
Succession is not an event that occurs at one point in time. Instead, it is a strategic plan that, if done well, is executed over the course of months and years. Succession plans must be formally created, with relevant parties involved so that expectations are defined and understood. In addition, there must be an understanding the business’ best interest might not always involve the transition to an immediate family member. My father has always made it clear that the future inheritance of THP is one of earned responsibility, not one of entitlement. Having this expectation communicated helps family members understand the importance of their commitment and investment in the business. Also, the concept of “family” is one to explore further within your business. While the founding family is the nuclear family at the heart of the company, there is a larger “family” to consider. Many veteran employees are bonded by company core values as well; they become family members by showing their commitment to the business and its success.
Promote succession and leadership opportunities in all managerial positions
Succession is not just applicable to the highest executive positions. For companies to succeed, every position in the company must have a succession plan in place. Doing this ensures smooth operations when faced with unexpected changes and motivates potential successors to seek after on-going education and training to be prepared for those leadership opportunities. When succession at all positions is made a priority in a company, employees see that there is an expectation for growth, and many will seek after that personal development themselves. Getting immediate family members and other employees involved and trained although the way sets everyone up for greater success. Deloitte addressed this as well by stating, “…preparing for succession well in advance and helping a successor to understand the business—ahead of time and in a calm atmosphere— reduces the potential for unexpected problems and disagreements. In addition, succession planning may increase the chosen successor’s ‘hunger’ to become the next leader.”
In the end, a company – family business or otherwise – must understand what it stands for, where it wants to go and how it wants to get there. For THP, our aspirations, vision, and mission have stood the test of time and guided each of our decisions. It’s those guiding principles and the core values that guide our current succession process and are key to the success of other family businesses who seek to survive many more generations to come. Learn more about how THP has become Vietnam’s leading privately held FMCG (fast-moving consumer goods) company by reading my book “Competing with Giants” or visiting https://competingwithgiants.net/.