Planning for success

SUCCESSION planning is proving a difficult topic for a range of businesses, from partnerships to sole traders and listed companies.

Besides the difficulties associated with appointing a successor for the individual driving the business, there are estate and financial planning issues to be considered.

In the case of family businesses, succession planning needs to be handled with care, lest acrimony and family feuds occur.

History shows that few sons are capable of taking their father’s place at the head of a family business.

A new leader may be needed to take the business to its next stage of evolution.

Bentleys MRI national chairman Geoffrey Hick said his company had developed a series of processes to help businesses handle succession issues.

Called Business Owners Succession Solutions, the process covers five modules. The first assesses the stage of the business’s life and what kind of leadership skills it needs to progress.

The second and third stages consider estate and financial planning, while the final two look at management succession and ownership change.

Mr Hick said a lot of his firm’s clients for this service were small businesses – predominantly family owned – whose owners wanted an alternative exit plan.

“Part of what we do is to help them find and groom a successor and let the people involved in the business know so they can all work towards it,” he said.

“In some instances we can look at appointing a CEO so the owner can retire and still have an investment working under management.

“And once you have the plan worked out you can head off any problems that might occur within the family.”

Curtin University Institute for Research into International Competitiveness director Peter Kenyon said succession planning was critical.

“One of the facts of business is that most businesses don’t last that long because they don’t handle the transition to new worlds well,” Professor Kenyon said.

“When things get big there are needs for different sets of talents.

“In public companies you start having the problems of aligning the incentives of the shareholders with the incentives of the managers. Most managers are on tight performance timelines so their incentives tend to be short-termist, but the shareholders want long-term gains.”

Argonaut Capital’s Charles Fear said that, when a person became a CEO, one of his or her first tasks should be to choose a successor.

“When I became chairman of the WA Cricket Association I identified how long I would need to be there to achieve the goals I had set and then identified my successor and started grooming him for the job,” he said.

Mr Fear said a business’s evolutionary stage also had to be considered.

“There have been a number of companies I have raised money for that acknowledged that the person running the business now would not be the person running it in five to 10 years’ time,” he said.

Norton & Smailes partner Chris Smailes said besides the obvious business impacts of succession, things such as wills also needed to be put in order to guard against the fallout from untimely deaths.

“In a lot of cases the consequences of not having these arrangement in place can be disastrous,” he said.

“In the case of a partnership or a directorship estates need to be arranged so the surviving partners or directors are not left with problems.”