The family members should actively lay the groundwork for the active involvement of the next generation through upbringing and education. By familiarizing the children with the history of the business and talking openly about current developments, parents and elders can reinforce identification with the family business. The children should be actively involved from an early age. This enables the older generation to identify their interest, involvement and commitment.
At some later point in time the succession planning should become more defined and detailed. The owner of the business should start to establish his objectives. He needs to think about how much control he wants to retain in the future (as shareholder and/or member of the Board of Directors), whether there exist family members capable of and interested in running the business once he steps down, whether he wants to stay on in an advisory capacity etc.. He needs to assess his financial situation, matrimonial and inheritance implications and has to consider tax issues that go along with succession steps. The owner of the business has to communicate and discuss his ideas with the family and start to implement a succession plan (e.g. as part of the family charter or in a separate document).
Sound basis agreements are the vital building blocks on which seamless and satisfying succession is built on. Drawing up unambiguous agreements is essential (e.g. succession agreement between the owner of the business and his family, organizational regulations for the members of the Board of Directors of the company, shareholder agreement between the shareholders of the company, matrimonial agreement, inheritance agreements or last will).
In a succession arrangement, the principles of the succession plan should be laid down. It should contain provisions regarding:
- the family members who may become and remain involved in the running of the business and how the other family members should be compensated.
- the time aspect, e.g. staggered transfer of shares to the next generation.
- how the transfer of the actual ownership stake should take place, e.g. anticipatory succession, mixed donation or a sale at market price.
- how shareholder interests and management responsibilities may be combined.
- exit strategies in case the succession plan does not work as intended, e.g. handing back of ownership. Families are well advised to ensure that the ownership of the company does not become too fragmented. Splintering of rights and votes frequently lead to stale mate situations. An effective successor arrangement must be flexible and should include alternatives.
Organizational regulations govern the duties and powers of the Board of Directors, its chairperson as well as of the delegates of the Board of Directors and may contain provisions regarding:
- the constitution of the Board of Directors.
- the frequency of meetings, the quorum and passing of resolutions.
- the inalienable duties and powers of the Board of Directors.
- the delegation of the companies management to delegates (e.g. certain family members).
- the right to information and reporting duties.
- the remuneration of the Board of Directors and its delegates.
- signatory rights.