Succession planning delays leading to transition hiccups

Wealth advisers must ‘get under the skin’ of family businesses in order to preserve the future of UK entrepreneurship, says private bank.

Many wealthy families are unnecessarily delaying vital conversations about succession planning, according to a survey of UK entrepreneurs and business leaders by Nedbank Private Wealth.

While 75 per cent express optimism about future prospects of their companies over the next five years, 54 per cent do not currently involve their children in the day-to-day operations of businesses, according to the research.

Even among those who do, a notable 24 per cent acknowledge difficulties in integrating the next generation into business life.

Such findings paint a stark picture of the obstacles families face with succession.

“One of the things we are keen on is communication, and that's the communication between the company's owner and their family,” says Simon Gibbons, executive head of wealth management at Nedbank Private Wealth.

“What we've noticed is there's quite a big disconnect,” says Mr Gibbons. “It’s very much a case of are we burying our heads in the sand and we’ll only have those conversations just as we come up to retirement rather than educating and setting a plan together from the get-go.”

Among those who do not involve their children in running the business, two-thirds – 67 per cent – attribute it to a lack of drive or capability, while 37 per cent believe they couldn't manage the challenges. Mr Gibbons stresses the importance of “driving” conversations regarding family business succession early on.

“It's really about the parents being able to let go. And I think that's where you see some of the challenges and why you see a lower number actually taking over the family business,” he says.

Generation Z – the cohort born between 1997 and 2012 – is expected to represent 27 per cent of the UK workforce by 2025, and family businesses will contribute £575bn ($760bn) to the UK economy, according to the bank.

Indeed, the entire future of UK entrepreneurship – in this new era of fast change – “hinges not only on economic stability but also on the successful transition of family businesses to the next generation,” says Stuart Cummins, CEO of Nedbank Private Wealth.

Wealth advisers, he says, need to learn how to navigate this transition, “getting under the skin of the concerns held by those passing on the mantle of the family business”.

Tough transitions

When it comes to generational transitions, both the next generation and the founders or current family leaders need to prepare in complex ways, according to Zita Nikoletta Verbényi, founder of The Legacy Atelier, a specialist family office consultancy based in London.

Succession will mean different things to everyone, from involving various stakeholders to discussing the “who, where, and why” of a business. Such processes, she believes, will only be successful if there is already a long-established engagement and inspiration with the next generation.

“Strong current leadership may give a false sense of ‘all is well’ for the family. However, the external world will be closely looking at signals regarding the confidence levels of the heirs, the trust they have earned from current leaders, assessing how well-nurtured they are into their new roles and responsibilities,” she says.

Effective recalibrations are essential in many key areas of the family’s focus. Otherwise, she adds, subsequent generations may need to deal with “double the work” when facing future succession issues.

Transitions are also about power and ego plays, says Ms Verbényi. Next gens often need to strike a balance by performing well, yet not overshadowing their elders’ achievements. “Some next gens don’t want to go near such confrontations.” They are often wondering if they need to please their parents and family members and sometimes doubting their own ability to fulfil such responsible roles, she adds.

“If current leaders lay down the foundations and benefits that will also come with being a successor, it may help immensely,” she says. Each succession is also a “fine” and “necessary” occasion to “capture, frame, preserve, showcase and structure” the most important tangible and intangible layers of family legacy.

Dissecting these layers can enhance family harmony and ensure longevity of family legacy, adds Ms Verbényi.