If we were to say the words “North Korea”, what would you think of?
Nuclear weapons? A repressive dictatorship? The stories of those living there risking it all to leave?
What if we were to say “succession planning”? Yes, it’s true - despite all the negativity that we associate with North Korea, there’s actually one key point we can learn from them: the importance of succession planning.
Kim Jong Un, the current Supreme Leader of North Korea, was trained for eventual leadership of the country all the way from his teenage years - and this enabled him to seamlessly take over at the age of just 27. He and his team have already proceeded to do likewise with his daughter Kim Ju Ae who, at the time of writing, is still only 13 years old.
Perhaps you think North Korea is too dystopian for your liking - so let’s take a look at several European countries. We can learn about succession planning from them too.
Rob Jetten, the current Prime Minister of the Netherlands, took office at the age of 38 - making him his country’s youngest to ever do so. However, Jetten is no greenhorn - he got his start in the municipal council of Nijmegen when he was just 23.
Just like Jetten, Simon Harris of Ireland was also his country’s youngest-ever Prime Minister, likewise taking the role at 38. This came after being primed for the role from age 15 when he became a member of the Fianna Fáil political party.
Sanna Marin became the youngest-ever Prime Minister of Finland when she was 34. As with the previous examples, she had already garnered much training and experience by that point - Marin got her start at 21 as a member of the Social Democratic Youth.
The lesson that family businesses can take from these examples is obvious - it pays off to invest time, effort, and resources into succession planning because it lays a stable foundation for the family business, wealth, and legacy.
It must always be kept in mind that leadership isn’t just about one’s title, but rather about what one can and will do in one’s capacity at the helm of the business. As such, the years of experience that the next generation will gain after being trained in the ways of the family legacy is truly priceless with regard to their future leadership roles.
However, where far too many family businesses go wrong is assuming that they only have to begin the process of succession planning when the next generation is relatively older. Doing so would deny the next generation the chance to have a solid grounding within the family business - which would in turn elevate their performance once it’s time for them to step in up top.
Therefore, proper and timely succession planning is the best way to ensure that the family business remains in good hands. Succession planning involves the active mentorship and preparation of the next generation for business leadership.
Regardless of the method by which the next leader is selected, every family business must prioritize specific matters with regard to family business succession.
Among the main factors that go into the process of succession planning are the leadership potential of the company’s next generation, each leadership candidate’s familiarity with the business and ability to adapt to changing scenarios, and feedback from key stakeholders.
Obviously, another of the most important points that most business leaders think of when it comes to business succession is the financial condition of the family business. Certainly, the family business would ideally be passed to a person who has the business acumen to lead it towards positive outcomes, generating a significant amount of revenue and setting it up for success for years to come.
That being said, when we once again look at the preceding examples, a common theme emerges. Our examples show that succession planning isn’t something that takes place overnight. It involves a process of years and even decades of identifying the best possible candidates to someday take over the family business, then mentoring them with the view that they too will become successful business leaders who will capably carry the family business into the next generation and beyond.
Early investment in family business succession planning not only enables the business to remain stable in the long-term; it also makes the business less likely to experience difficulties when unexpected situations arise in the future. This is because the next generation who would have learned a great deal about the leadership of the business and how it ought to work will be able to apply their knowledge and training in a practical setting, allowing the business to avoid trouble it could’ve otherwise fallen into.
Having a viable succession planning strategy for the generations to come can even be considered a form of wealth preservation. If the business is open to external investment or even minority ownership, its value will increase if it has a stable leadership pipeline that lasts for multiple generations. Such a business valuation increase applies in Malaysia as well as elsewhere.
To conclude: the difference between a family business that collapses before the second generation has truly been able to leave their mark on it and one which lasts four, five, six, or even more generations than that often boils down to one question: “does this business implement succession planning to the best of its ability?” Any family business that does so can expect to reap the rewards both today and in the future.
We at Evoque Advisory are always ready to assist your family business with its succession planning needs and help you devise the best possible strategies to keep your business in good stead over the years to come.
Please contact us at enquiry@evoqueadvisory.com to request a consultation or address any other relevant matter.
