A few days ago, a survey published by the Malta Chamber brought to light the lack of succession planning in Maltese family business. From my years of experience working closely with local SMEs, mostly family-run, this comes as no surprise. Succession planning is a delicate topic commonly avoided by the vast majority of businesses. This warrants a follow-up question “...but why?”

The reasons vary but I tend to classify them mainly in two categories, both of which are closely linked to the intrinsic human nature of experiencing discomfort in situations of conflict and change.

The first category is that comprising those business owners who genuinely do not believe they have the need. Typical underlying reasons are because these business leaders feel healthy, still energetic and in full control of their business, seeing no need for such a succession plan. This is the category of non-awareness. Business owners in this category are not usually convinced by an awareness campaign; it is more likely for them to eventually change their position subsequent to an unexpected life event. These could be health scares, marital issues of themselves or their children or the discovery of hidden agendas by other stakeholders.

The second category is made up of those who have the awareness, yet avoid the topic out of fear of triggering conflict within the family. In a genuine attempt to prevent conflict situations, business owners sometimes avoid the topic altogether, leaving it to the next generation to sort it out between themselves, in the hope that things automatically will fall into place… but they rarely do! I would not be objective if I do not spend a word in defence of this category. The fear of conflict does not originate from incompetence or incapability but it tends to emanate from the knowledge of the characters involved. Parents are those who know best their upcoming generation and typically stress themselves into anticipating the reaction of their children. This stress brings about the avoidance response.

So, a vital element to the success of any succession plan is the recognition by all involved that the process is predominantly a human one before being a technical one.

A successful succession plan has three distinct phases – it primarily starts as an internal conviction of its need by all those involved, and this step is most often underestimated. At this crucial phase it is paramount to identify any stakeholders who may be willingly obstructing or undermining the process. These are those who see the succession plan as an obstacle to their agenda. Any of these characters need to be addressed before moving on to the next step, and this is often the toughest part.

Then comes the actual planning and implementation. This is the process of considering and deciding on the various aspects of the plan itself. This process is particular to every organisation depending on the sector and nature of the business itself, the size of the organisation, the size of the family and is a vast subject that would require a volume of work of its own. Anyone interested will find plenty of easily accessible material and research on this process.

Third and most importantly comes the mentoring and coaching of the main stakeholders. It involves the process of coaching and mentoring the upcoming generation, the identification of the right point in time for handovers to take place and an objective assessment of whether reality is in line with the plan or whether the plan requires updating. An important aspect is that a succession plan is not a finite project but an ongoing process because albeit we can do our utmost to plan the future, life can give us surprises. An emblematic example is the Agnelli family story that lost both contenders to succeed at the helm of the Group in a very short span of time – Edoardo and Giovanni Alberto. Albeit sure to have a proper succession plan in place they had to face the tough realities that sometimes life may throw at us.

So, provided that looking out for hidden agendas and tackling them appropriately is vital to a successful process, some common reasons behind unsuccessful succession plans and how to prevent them can be discussed.

First and foremost there is a key difference between family succession planning and corporate succession planning. This distinction has to be kept in mind in the choice of consultant. To give an example of how important this distinction is, the GE succession process comes to mind. The process kicks-off with 64 candidates, is eventually reduced to 24, then further reduced to eight, until the final three candidates have to spend a whole year with the outgoing CEO who has the responsibility of giving his final recommendation to the Board. These final three candidates have to accept that in case they are not the chosen candidate, they must leave the organisation. This may seem draconian but is done to ensure a smooth handover. In any case the unsuccessful two would normally have quite a few options lined up. These approaches cannot work within the family context because parting ways with family members may not be possible, since these are legitimate heirs who would someday be vested with the legal rights and powers given to them by virtue of their shareholding. This can also be related in politics because one cannot dispose of those who are democratically elected.

Second, albeit any succession plan is to be documented and codified in order to cater for easy interpretation, the constitutive document must not be seen as an end result. On the contrary a succession plan is a concept in itself, to be ingrained in the company culture. As a legally trained professional I hereby bring the analogy of the constitution – the constitution is yes documented but in itself is a concept not a thing. Few people know that the English Constitution, which modelled many modern constitutions (including ours), is nowhere to be found in writing as a single constitutive document. I am saying this to send across a message that a family succession plan is a modus, a culture and not simply a document. The document serves for reference, interpretation and application.

So what?

Careful succession planning can avoid crisis situations that impact the ongoing operations of a business. Internal politics should be put aside and resistance to change should be neutralised by a two-way communication revolving around the common goal. There are times when non-family members may be a better fit for particular positions. What to do? Getting an external perspective to the table always eases the intrinsic challenges of designing a succession plan.

A typical pitfall, which I experience, is the expectation of the founders that the engagement of consultants should be enough to complete the three phases above, whereas the main elements of the plan should be the people involved themselves and not just the consultants. Shifting the attention to the consultants, unfortunately too many take the approach of handing over a deliverable but fall short in the hand-holding required for its implementation. The report in the directors’ office will not get the job done. The typical consequence of this approach is for the person in charge to start losing motivation and start seeing it more of an expense rather than a necessary investment. Consultants need to be seen as enablers and guidance but not the factotum of the succession plan.

The consultant’s role, just like in most other engagements, is not to take the decisions himself but to assist the key people into taking decisions. The reason behind the result of the survey I cite at the very beginning, is unconsciousness and inexperience. Throwing money at a succession plan in the form of external consultancy is not a guarantee of a successful outcome. The actual plan roll-out and implementation is what the founders should be immersing themselves in.

Business founders would not have experience or the learning curve in such an exercise, since succession planning is practically done once in a lifetime. The best starting point in such a context is starting by your own awareness. The initial awareness and willingness to implement a successful succession plan is usually the element which augurs well for the succession plan to work.

Instilling formality and professionalising the work environment are two crucial enabling factors of building a succession plan. Having well-structured communication channels and escalation paths are key. Eliminating the emotional and romantic variables from the equation, from experiences, make the transition a more seamless and frictionless one.

Founders should invest in themselves to tackle succession planning practically and pragmatically. Succession planning should be, at the right time in life, the way of life inside and around the SME.

The next column shall focus on the concept of lifelong learning and its commonly underestimated benefits

Dr Anthony Sammut is an advocate, business advisor and SME specialist