PFBI Connect

September 2023 < Back

Experiencing succession in PEACE

The authors highlight five fundamental principles of a successful generational handover, which allow robust businesses to thrive and struggling ones to regain momentum. These principles, collectively known as PEACE, are Planning, Equity, and Access to external figures, Co-presence, and Emotional Readiness.

1. Planning

The idea of generational change from one to the next is not a single moment. It is a long process requiring careful planning similar to planning for a new product launch. Planning the changeover must involve specific deadlines, setting out exactly when and to whom the rights and responsibilities will transferred. The plan should encompass a broader strategic context that defines the future vision of the company. Successors must acquire experience outside the company; as well as work and progress within the company in line with their aptitude, capacity and competencies. Predecessors should gradually transition out of their responsibilities.

2. Equity

1. The principle of "Equity" involves fair distribution according to merit. We must identify two other: “equality” and “need.” 'Equality' involves equal sharing and 'need' determined by individual requirements.

2. Merit is determined at the entry point to the company by two factors: relevant studies and external experience. This ensures successors bring in new knowledge and competencies into the company and legitimise their role in the eyes of all stakeholders, including family and non-family members

3. Access to external figures

The company can engage two types of external figures:

1. The company may pass the baton totally or partially to an individual who is not part of the family. Generally, a successful generational handover should ideally occur within the family circle. However, the crucial aspect is that the transition ensures that the company maintains the necessary human and financial capital to make sure it can continue to compete successfully, regardless of the name that guarantees this capital.
2. The family might seek external consultants to advise them during this delicate process. This helps to face the transition with the emotional distance and to avoid altruistic and nepotistic choices. Drawing from previous experiences ensures that the process becomes equitable and transparent.

4. Co-presence

Many think that the generational handing over process is an event that takes place in one precise moment: first, the older generation is in command, then the younger one takes over the leadership. This is not the case; as the process may take several years or even decades. Handing over does not conclude solely with the formal transfer of power, but continues even after this formality. Patience, flexibility and coherence throughout the process, gives the company a sense of continuity that is sustainable. If older generations are concerned about ‘stepping back’, it is desirable to take a ‘step to the side’. Co-presence allows the transfer of skills built up over time that are often unique and valuable and prevents their loss.

5. Emotional Readiness

Another principle involves assessing the emotional preparedness of both the incumbent and the successor. On one hand, the incumbent needs to be emotionally prepared to follow the path out, otherwise inertia sets in, increasing the likelihood of a conflict-ridden process. On the other hand, the successor must be willing to commit to and be emotionally engaged in the company. Several types of commitment exist on the successor's part as mentioned below. Not all are equally effective: as described ascendingly by effectiveness

1. Some wish to enter the family company out of necessity, i.e., they do not really have an alternative: an imperative commitment.
2. Others wish to enter because, despite alternatives, they realise that going into the family business is the easiest option: a calculative commitment.
3. Some feel social pressure and a family obligation to enter the business: a normative commitment.
4. Lastly, some are passionate, identify with the ideals, and align their own interests with those of the family business: this represents a blend of emotional and effective commitment.

Source: Salvatore Sciascia and Dario Voltattorni (Tharawat Magazine)

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