Too many family-run businesses have no plan for the next generation

Just 17% of family businesses have a formal succession plan in place, a new survey finds

 

family-succession

When John Simpson’s father, Jack Simpson, died at 64, he left a perfect tax plan for his estate, but no plan for who should lead CANA Construction Ltd. Initially a chief engineer, the elder Simpson had successfully bought out the Calgary-based company’s founders, but hadn’t designated his own successor. His son John had been employed at the company for most of his life, starting out with a shovel and working his way up to vice-president. But there were other contenders and no obvious plan for selecting one.

“It ended up being me,” says the younger Simpson, who had a dispute with his sister over the fate of the business. Simpson decided he wanted to protect his own two children, who are now in their 30s, from such uncertainty. Twelve years ago, Simpson started working on a contingency plan in case of his untimely death, a management strategy that’s updated annually to reflect who’s in senior management, where his children are in their skills and ambitions, and the status of his own eventual retirement. “I thought that rather than giving this dirty job to someone by surprise, it would be best planned out,” he laughs. His daughter, who had previously pursued a career in landscaping and worked as a ski instructor, now runs the development side of the business, while his son, who studied communications, would “love to run the company, but he needs more time.”

Chart showing proportion of family businesses with no succession plan in place, in this case 33%

A third of family businesses have no succession plan in place. Download the complete report for more.

Simpson is exceptional. Surprisingly few Canadian family businesses have formally planned how the next generation will take over. The 2014 Deloitte Family Business Survey of 120 family-owned Canadian companies found that just 17% of those surveyed have a formal leadership succession plan in place. While half have an informal plan, that doesn’t leave them in much better shape than the 33% with no plan at all, says John Hughes, managing partner for Growth Enterprises at Deloitte Canada. “They may have a sense of who’s coming up through the ranks, but that isn’t really a plan,” says Hughes, who also leads the Canada’s Best Managed Companies program. There is no designated successor for the CEO or president at 54% of the companies surveyed, and of those that do have one, it is formally recognized in just 13% of cases. “It’s really about controlling the process as opposed to having it thrust upon you,” says Hughes. “Do you want to run the process or do you want to be run by the process?”

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