The issue of succession—the process of handing wealth, assets, and responsibilities to the next generation—is one of the most complex, demanding issues that successful, high-net-worth families and family businesses have to navigate.
Succession is one of those rare issues that is truly multi-disciplinary—it covers legal, financial, tax, corporate, philanthropic, and, of course, PR and communications best practices—the focus of this insight.
However, I think many families are guilty of only ever considering this issue from a legal, financial, and tax point of view. Their priority, time, and energy have generally been on how they can structure their businesses, investments, and assets in the best possible way to ensure their wealth is successfully protected across the generations.
A new succession planning model
My view is that succession planning is broadly viewed by families, and even their advisers, as a square on a sheet of paper, when actually it’s a cube with multiple sides, elements, and facets. Succession is not solely about the transfer of wealth; it’s more complex than that, and there are so many different elements families need to take into consideration.
On one side you of course have wealth and assets. The other sides are taken up by the personal aspects of succession, handing over the decision-making responsibilities to the next generation, the structure and governance of the business, philanthropic objectives, and much more.
But there is another side that’s often overlooked and pushed to the bottom of the priorities list, and that’s the communications and reputational elements.
If you are a high-net-worth family or family business, your media and reputation risk exposure is higher than mine. There is more external interest in your personal and professional lives from stakeholders and the public as a result of your success and profile. There are also greater risks to your privacy and you will likely be exposed to some degree of media interest.
Yet, the biggest, long-term risk to your reputation is a disorderly, poorly-communicated, and planned succession event.
It poses the greatest threat to you and your family’s reputation, principally because any negative impact has the potential to affect multiple family members at once, as well as their associated businesses and investments. It can have personal and professional ramifications.
The succession planning process for reputation
Part of my role at Transmission Private is to help make clients attuned to these risks and generally encourage them to think about this issue through more than one lens.
There are two key aspects that we need to consider.
Firstly, the short and long-term reputational impact of an unexpected, unplanned succession event or death, and secondly, the issue of transferring reputational capital from one generation to another.
Let’s take these in turn.
The sudden death or ill health of the principal of the family can cause a significant amount of uncertainty and volatility both internally and externally. In this worst-case scenario, it will increase short-term exposure in the family and their businesses—not only from the wider public and local community, but from suppliers, employees, talent, investors, customers, service providers, regulators, industry bodies, politicians, and banks.
To the outside world, if it looks messy and unplanned, it raises questions and doubts that the family business is in crisis; that there is a leadership vacuum. This can damage the personal reputation of the family itself and is likely to cause significant market disruption of their businesses, too.
This is applicable to all high-net-worth families, but some are in greater danger—specifically high-profile entrepreneur families, multi-generational families, and families who still operate and own a large business.
On the second issue, usually, the wider reputation of a whole family sits on the shoulders of the principal of the family—the person who generated the wealth. The issue families need to consider is how can they ensure there’s a successful transfer of the family’s reputation across the generations.
Often, families’ success in business can come from the reputation of a single individual; they’ve naturally built a positive reputation over decades that’s bought them influence and power. It’s not uncommon for a family’s deal flow to come solely through the contacts and reputation of the principal of the family. Those thinking about it in the right way will know that a strong reputation is an asset worth protecting.
What happens when that individual dies?
If there’s no careful planning before a succession event, then that reputational capital will be lost or severely diminished. This has real consequences—it can slow down deal flow and cause a collapse in confidence from the market, from suppliers, from business partners and associates. On a personal level, key relationships can be lost.
Succession planning best practices
These are the issues in play, but what can families do about them? Here are some key tips:
- The key is in the word planning. By putting in place a succession plan ahead of time, key risks can be mitigated, controlled and, even, prevented. Succession is like death; it’s unavoidable.
- Prepare a crisis communications plan, outlining key short and medium-term tactics to deploy to protect your reputation in the event of a sudden death or tragedy. This is your insurance against uncertainty.
- At least five years out from a succession event, ensure that gradual visibility is given to the next generation within the business to build external familiarity to the younger members of the family.
- Consider a wide variety of audiences relevant to the family. Families might be ambivalent to public scrutiny, but for some, scrutiny from smaller, but influential audiences such as financial institutions, employees, and supply chains are critical to the ongoing success of their family business.
- Agree common, broad goals and missions of the family to ensure everyone is pulling in the right direction and present a single, unified face to the outside world.
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