JEDDAH, 21 February 2005 — Succession is not just an event of handing over the reins of the family business to one or more chosen family members. It is a process of transition. It is not giving up or giving away the control of the business to others. It is a process of transfer of governance.

Leaders of a significant section of family businesses do not want to even entertain the idea of succession. For, they either believe that they are immortal & indispensable and hence cannot let go. They believe that the business is a product of their dreams and hence their baby.

Some family businesses leaders follow “let me give a chance to...” approach. They tend to put the chosen successor into a tough job without adequate preparations wanting to watch how he faces the situation.

Some others follow pseudo grooming — creating a new position in the hierarchy (additional managing director for instance) for the potential successor with the hopes that he will learn the hard way.

Yet others do not consider succession till the owner is no more in a position to attend to the business (serious illness for instance). Panic buttons are then pressed and ad-hoc decisions taken.

As time would have it, a day will come when the mantle has to be passed on. It is better to do it out of choice rather than out of compulsion.

Why business owners do not think of succession?

• The owner hates to think of giving up the control of the business that he has built

• Nobody enjoys thinking about illness/death. Is a succession plan an admission of mortality?

• Children/spouse do not want to bring up the topic. For, they could fear being considered as greedy or as pushy.

• Key managers do not wish to rock the boat

• Friends and advisors hesitate to raise the subject for fear of offending the owner

• Dodging the issue protects the owner from making tough decisions.

Why plan for succession?

• Leaving a legacy: Good leaders leave an indelible stamp on their business but when they are ready to move on to seek new challenges or retire, their legacy can be greatly diminished without good succession plan.

• Achieving immortality through business continuity: The closest that a business leader could come to immortality is to put in place plans for continuity of the business to the next generation.

• Outlet for individual creativity: The family business could provide a forum for the younger members to assume entrepreneurial identity.

• Revitalization: Changes in technologies & markets enhance business complexity calling for new business models. The younger generation could bring in the required newness.

• Enhancing the value of the business: A well formulated succession plan when properly communicated to all concerned makes it clear that the business will not suffer from transition trauma. This enhances the goodwill of the business and its value in financial terms.

Choosing and Grooming the Successor:

It is necessary to follow a scientific approach to choosing and grooming the successor. Putting family members on the payroll just because they need the job is a welfare system — not a sound business strategy.

• Parents lay ground rules for succession when children are young — inculcating values of hard work, savings, sharing, sacrifice and consensus.

• Being in family business has to be an option, not an obligation for the younger generation.

• The plan has to encompass development of entrepreneurial and managerial skills as also value systems.

• Youngsters need to think of greatest possible contribution that they can make to the family business, not reaping the greatest possible benefit.

The grooming process starts right from the stage when the potential successor is in his pre-teens. An informal exposure to the family business during school holidays, followed by a structured orientation program after completion of formal education could be considered. As it happens with any other employee, a specific responsibility is to be assigned to him depending on his aptitude and under the watchful eye of a mentor. Alternatively, he could be encouraged to gain experience in a place other than the family business. Either way, his performance is periodically assessed and then, he could be assigned a significant decision making role in the family business. He then starts working with the business leader as an intern ultimately taking over the reins of the business.

The world over, only a third of the family businesses survive to the 2nd generation and a mere 10 percent of them service to the 3rd generation. We can beat these statistics only by following scientific approach to succession planning. There is an opportunity to learn about such a scientific approach to succession planning from German and Swiss experts through a workshop to be held on March 5 at Jeddah by the Family Business Academy (www.fba-me.org). FBA, which is headed by me, is a not-for-profit organization promoted by Bait Al-Battergy Medical Co. as a part of its social commitment to foster family businesses in the Middle East.

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(Sobhi Batterjee is president and chief executive officer of the Jeddah-based Saudi German Hospitals Group.)