Succession keeps families up at night. Families spend a lot of time preparing for succession. And rightly so. Transition events are the most complicated, stressful and emotional moments in a family's life.
A recent survey from Campden Wealth and UBS highlighted the level of concern among families. 47% of international families surveyed said their next generation was either somewhat or very unprepared for future succession.
But while many families invest a significant amount of time in the financial and legal risks of succession, they spend a lot less time on the reputational risks.
They agonise over family charters, tax structuring and ensuring their succession plan is legally watertight but overlook the risks that succession presents to how the family and its businesses may be viewed by not only the media but by its supply chain, employees and other partners too.
What's does a transition event look like if the required thinking hasn’t gone into communications?
- There are no prepared media lines or quotes for the press, business partners or employees. The transition event looks unorganised, unplanned and haphazard.
- The next generation are completely unknown to the wider business community. External stakeholders lose confidence in the ability of the new management to run the business.
- The next generation are known by name but have no obvious track record communicated online.
- Business partners and others are left with the impression that they are not fit to run the business, even if they are well prepared.
- Radio silence after the transition event gives the mistaken impression that things are chaotic.
- The markets, business partners and others are unsure in what direction the next generation will take the business, spreading uncertainty.
- There is harmful, damaging or embarrassing content about the next generation online – on their social media accounts, for example – which is picked up by the press, and undermines confidence in them and the company.
- A downward, self-enforcing spiral kicks in. Anxiety amongst business partners leads to bad coverage, raising anxiety further, leading to destruction of value within the company.
Of course, there is a flip side to all of these downsides as well: if a family communicates the transition event expertly – painting a picture of a company and family at ease with itself and a transition that is natural, organic and well-organised – it can even strengthen the company.
It can strengthen the company because while highlighting the continuity with the existing family management, the transition event is an opportunity for the company to showcase the new skills and aptitudes of the next generation. At a time when digital disruption is wreaking havoc on family businesses, this can reinforce market confidence in the business' ability to manage this transition.
It is unexpected transition events that deal the biggest reputational blows to a family business or family office.
If the patriarch or matriarch of a family dies suddenly, this can raise immediate concerns about the future of the business – and its ability to continue to survive without their leadership. This is especially true in businesses run by first-generation entrepreneurs, where there is a perception amongst the wider business community that the business is heavily reliant on their vision, charisma and get-up-and-go of the founder.
This reputational risk usually realises itself first as whispers on the lips of business partners, employees and advisers: what happens next to the business? Will we continue to have the will, foresight and drive to continue to grow the company? And will the company survive without the long-standing, deep relationships of trust the founder has with the rest of the industry?
The last question is an important and instructive one: the reputational risks from succession do not extend only to the threats to the way the business will be perceived after the succession event but also to the loss of the network that the former head of the family had. In the past if there was a problem with the business’ supply chain or managing currency risk, for example, they always had the depth of network to call someone to solve the issue and put the company on an even keel again.
Of course, this situation is even more confused if the patriarch or matriarch does not die, but is – instead – incapacitated for any reason: that might be because of a health condition; a progressive mental health issue; or even if they have been held up incommunicado in the Ritz Carlton.
We often find that families have very thoroughly worked out financial and legal systems in place to control these risks, but comparatively little – if anything at all – to manage the reputational consequences?
Despite the immense risks to a family from succession, the steps that a family needs to take to get them under control are, relatively, simple.
For example, we recently worked with a family business principal who was particularly concerned about the reputational consequences if he suddenly died. He has two younger children – 12- and 15-years-of-age – who are not old enough to take over the business yet.
The family already has in place a clear plan if the worst did happen – there is a 10-year plan for the existing COO and CTO of the business, with the wife of the patriarch continuing to sit on the board, to continue running the business in the same strategic direction. These individuals were also highly experienced and networked in their own right.
They would continue to manage the business, with a view to passing over the reign in 10 or 15 years if certain criteria were met.
But, while this had all be planned out, there was no communications plan to articulate this if a death or incapacity situation did arise. We put a lot of work into developing a fully-fledged communications plan – it broke down how communications would proceed for the first day on an hour-by-hour basis, then day-to-day basis, then week-to-week, and then finally – in the longer term – a month-to-month basis.
Importantly, we did not only prepare lines for the media if there was inbound press interest but we prepared statements, Q&As, and content for employees, business partners, banks and others too. Communications does not stop at the media.
Fortunately, the plan hasn't been used, but it has been locked tightly in a safe for if it ever sadly needs to be dusted off. We also agreed to update it on a yearly basis.
There is a lot more a family can do to manage and communicate an expected, normal transition event. This activity is best if it is mapped a year out, or ideally even further, from the transition event, so that the activity can be carefully, quietly ratcheted up. This means there is not suddenly a rapid and disconcerting change in tone from the business.
These are the areas of activity that we will usually work on with a family to make sure that the succession event is deemed to be smooth; smooth because it is viewed as organic, natural and – most importantly of all – planned.
- Start to slowly integrate younger, next-generation members of the family into company content, including leveraging them as spokespeople for the company.
- Showcase the biographies and credentials of the next-generation members of the family on the family office or family business website; make them part of the family brand.
- Conduct careful, strategic press and media work, perhaps with selected next-generation members of the family, giving interviews to industry publications, showcasing their credentials and what new skills they may bring to the business.
- Complete a full reputational risk audit of the next-generation members of the family, ensuring that any embarrassing material, such as old juvenile content on social media, is removed.
Wealth transition is a very difficult, emotional, trying time for a family; understandably so. The situation can be made a lot more stressful if it is paired with intrusive media interest or sector speculation which is harmful to the family's businesses.
As with many things in life, preparation – and thoughtful preparation at that – is key.
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