Succession Planning: Cultural Nuances and Nextgen- Episode 6
Succession Planning: Cultural Nuances and Nextgen- Episode 6 - Episode 6
06/02/23
In this episode; Esiri Agbeyi, Partner, Private Clients & Family Business Leader and Clare Stirzaker, Partner, Private Client & Tax Boodle Hatfield LLP, London, talk on the topic: “ Succession Planning: Cultural Nuances and Nextgen- Episode 6”.
Time: 27:53 min
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Transcript
Esiri: Welcome to episode six of Next Gen Talks, an initiative of PwC Nigeria's Next Gen Club. My name is Esiri Agbeyi, I’m the host, and I will be introducing very shortly our guest on this episode. In this series, we'll be looking at succession planning in family businesses.
One of the findings from PwC's 2022 Next Gen report indicates that half of the family businesses in Africa do not have a concrete succession plan in place. It is no wonder the involvement of the NextGeners in their family businesses begin to decline as the business approaches the third and fourth generations. Most businesses in this part of the world struggle with succession planning, and embracing governance structures that ensure the efficient functioning of the business. It's imperative that family businesses in this part of the world are well-equipped with the knowledge and resources that aim in ensuring an effective succession plan. It is also very useful to understand how existing traditions, conflict resolution, and articulating the big picture, impact succession planning for family businesses.
Joining me today on this episode of Next Gen Talks, is Clare Stirzaker, a partner of Private Client and Tax at Boodle Hatfield LLP, a trusted law firm in Mayfair, London, with over 300 years of advising world families, property owners, and businesses. Clare will be sharing her perspective on succession planning, traditional conflicts, and the big picture. And just before we get Clare on, we do have a nugget, which we always try to introduce in our episodes.Sometimes we focus on myths and facts.
Today's myth: "Succession planning is about retirement, and I'm not ready to retire." So welcome, Clare, and thank you for coming on Next Gen Talks.
Clare: Hi Esiri, thanks so much for having me. It's great to be here today.
Esiri: Awesome. Awesome. It's been a while since we saw physically, I think the last time was maybe last year, or was it this year?
Clare: I think it was last year in London. But, you know, you and I managed to do a few trips in Lagos before COVID, which created some great memories. So it's lovely to be involved in this as well.
Esiri: Welcome, Clare. So what are your thoughts on the nugget? “Succession planning is about retirement, and I'm not ready to retire.”
Clare: Yeah. I've heard that quite a few times from people I work with but it's not exclusive to my clients. You know, I think all of us focus on retirement and work is such a big part of our life; we identify so much with work. When you start talking about succession planning, with anyone really, in a business, it's something that some people really dread because they can't imagine a life without working. And, that's often because it's tied up as a big part of what they see as their purpose in life. So when we talk about succession planning, retirement is obviously part of that. For me, it's really about thinking about the business and the needs of the business, and how you can make sure that business keeps going in the event of something happening to one of the key leaders.
So I tried to reframe some of these discussions around business continuity and what needs to happen to make sure the business keeps on running, and retirement is one factor that could impact business continuity but it may not be the only factor. So maybe trying to reframe it in a more positive way, and I think also for some clients, recognizing that if retirement isn't something they want to deal with anytime soon, then how about a change in roles? And if there's somebody who is really involved in the business, can they just start to step back into more of a non-executive role, for example, more of a chairman role? It's just trying to reframe the discussion in a positive way and recognizing how important work is to people's lives, generally.
Esiri: Yeah, absolutely. And from what you've just shared, Clare, succession planning isn't a one-time event, definitely, it has to be planned for. So if you need to take a step back, then you become the chairman hopefully, that takes some time. So it'll just be good to put that in perspective too, you know, to get your thoughts and understand the stories behind some of the most successful businesses in the world. What are the most intriguing lessons that you think have given successful succession historically? And it can also be in your own field with clients that you've worked with.
Clare: Yeah. As you just summarized then, for me, what I love about what I do is learning about stories behind these family businesses, particularly where they've lasted for multiple generations. When I've worked with family businesses who seem to get succession right, one of the key ingredients has been really celebrating the story of their business so that the family and future generations connect with it in a more emotional way. And they feel more respect for the fact that they want to try and keep that business going if that's the right thing to do.
So often, when I've been to family businesses, you know, where that's important, they'll really be proud of their story, or have their story sometimes literally on the walls of the business as you walk around. I remember one family business I went to, they had pictures of all the staff on the wall, who played a part in growing the business, not just family, but non-family, connecting with their tales and the role they play in that business, as well as the tale of the business itself, where it started from and where it is now and also where hopefully it will go. And I think that emotional connection within a family is so critical, because you know, running a business and passing a business on comes with a lot of responsibility and burden. And you need to feel that you really connect to that, that it's really important to you as a family, and you want to give your efforts into making sure that lasts for your lifetime. So, I think having that emotional connection for me is key. And that's why I try to encourage people to focus on the stories.
Another insight around that would be respecting how a business (whilst it's really important to a family) isn't everything. The family has got a life outside of that as well and you have to just want to reflect. Although the business is a great source of wealth and potential pride and happiness for a family, it can also bring about challenges and arguments, and so on and people may not necessarily want to be involved in the business, even if they love the tale of the business. I think it's important to recognize that too.
Esiri: I like that concept of storytelling. Growing up as a child, I remember how my dad would tell us stories, every time we came home with our results. It was a time to celebrate, but then there was also a time to tell stories, and then we would tell those stories into the night. It formed a very unique bonding with him. Even though my dad has passed now, when I think back, I'm just thinking more about the stories. And there’s a huge connection it brings. So when you talked about the wall of fame as well, you know, I just started to think of a coffee table book of sorts, where we tell the story of how we’ve journeyed through businesses. Is that something you also see?
Clare: Yeah, you do. And actually, families will commission writers and publishers to kind of help them create that book. I think also though, you've hit on it there. There's nothing more valuable than just hearing a story from somebody directly from their mouth, that oral tradition of storytelling. And I think where families get this right often is, you know, going on family retreats, having family away days where they'll get the older generations to tell the story in their own words and that can be incredibly powerful. And I think the book is really nice, it's a nice reflection and certainly for advisors, when we come into the offices, we're sitting in the waiting lobby, you know. We can look at a book and start to get a feel for that business, that's really helpful for us. For the family, also just hearing it directly from people in that family, it's so much more powerful, actually.
Esiri: Yeah, yeah. And Africa has a history with telling stories. This is how we hand our history down and we're very good storytellers, you can ask Nollywood. Maybe what I'd also like to just get our listeners to understand is, what traditional practices have made family businesses struggle in succession planning, or what challenges have you seen practice that makes succession planning difficult?
Clare: Generally, it's definitely a lack of preparation. Going back to that nugget you said earlier, there's something in there about people being slightly in denial, or feeling it's just a really hard thing to address and they don't know where to begin. I think that often means there's no preparation, no thought, suddenly something happens, some key person passes away, and the family is left trying to work out, “What do we do? How do we run this business? Do we keep it going? How do things work in practice here? What are we meant to do?” And I think that's where it gets challenging.
Tied into that as a theme is where people haven't prepared, that often means they won't have the right structures in place to facilitate that transfer. So it's not uncommon, I'd say, particularly with a business where the founders are still alive, let’s say the first generation. So you've got one or two founders, maybe a sole owner or sibling partnership-type model and they run things their way, they know how to do things, it's relatively informal around how they run things, from a governance perspective. They won't have a board of directors necessarily, or if they do, they don't necessarily have formal board meetings, they don't have much governance in that business, either at board level or shareholder level. And I think that can create some problems in terms of how well succession will work. For me, it's lack of preparation, governance being key to that. Lack of communication, too. So almost like, “This is a really difficult issue for me to address. I don't know where to begin, so I'm just not going to talk about it.” When you don't want to go to the doctors to deal with a problem, you know, you think, “Oh, no, I'll go next week.” and then it's the week after. The same with succession, people think, “Oh, I know I need to deal with it. But I don't know how.” They don't know how to begin talking about it so they just don't. So that's it.
Esiri: Hmm, yeah. So would you reckon that it takes some sort of awareness getting up to that point? Even for the founders, as much as, you know, the beneficiaries of the will.
Clare: Well, yeah. Certainly, since I've been in this business, about 20 years now, there's been a huge growth in materials available to family businesses around why succession is so important to get right, and how to get it right. I mean, it's so much out there. It’s that in itself that can almost be overwhelming because there's so much material and connections out there. But I think, just being curious about this, and starting to learn and educate yourselves, and I think starting to have some natural conversations in a family around, whether it's over the dinner table, or wherever it may be, you know, “Where are we going with this? Are the kids going to be involved? Do they want to be involved? Do we want them to be involved? Do we want the business to carry on?” You know, that they may feel like big questions, but I think starting to have some sort of natural discussions in a family about this and learning about what others do is really helpful.
Esiri: Yeah, yeah, absolutely. Thanks, Clare. And just trying to bring this into different worlds. So we've got the family, we've got the business, and these are all subsets of the family business. In Nigeria, for instance, there's a natural flair to have the male firstborn take on leadership roles, and that leadership may be the family just as much as the business as well. But perhaps that's not really what the business needs, it's just there's that feeling of, “Oh, I need to step up to be the one who takes over after Dad or Mum passes.” And it puts a lot of pressure on Next Gen, just as much as it raises anxiety for the founders, the patriarchs or the matriarchs. So I guess my question is, is there a need to be more aware as well of building a distinction between who could take over, who could be the successor on the family side of things, this thing from the business side of things? And there shouldn't just be a natural assumption that the firstborn male heir is the one who should take your business to the next level.
Clare: Yeah, yeah. I mean, I know culturally, in West Africa and other parts of the world, that’s a really important discussion to have. And certainly, in the UK, that's been the case, too, you know, we've had almost a natural assumption: my next in line, my son, primarily, and my daughter will take over the business. And I think you're absolutely right, you know, is that the right thing? Is that what they want? For starters? Are they really wanting to do that? Because that comes with a lot of responsibility. And it may not be something that they're suited to, you know, they may have skills in other areas. And I think, often we’ve found, is it’s trying to make that distinction between being an owner of a business and running a business. The owner and manager as people characterise it, and really assessing what skills do we need in the business? To what extent can those skills be provided for by the family group? You know, have we got people in this family group who have got these leadership skills and commercial skills to step into these roles? And if they haven't, are they going to be owners of that business and what do they need to be good owners of that business as well? You know, they'll still need skills to kind of step into that role too but they're slightly different skills. So I think assessing what the business needs is really important.
From a family perspective, families will often feel a real sense of what best describes it. You know, it's a family business, they feel it's really important they have family in that business running it. Because how else will the business continue to succeed? And I think it's important to really analyze that and assess if that is definitely the right thing to be thinking here. If you haven't got people in the family who can naturally step in, then maybe that's something you need to critically think about and assess that we bring in commercial, external people instead. And, you know, have us as owners only. It's a difficult model to think through, but I think there does need to be discussions. I think often where things start to fall apart, or family members have been put into leadership roles they're not suited for, that prompts people in the business to leave because they don't have faith in their leadership skills. And it can ultimately cause your business to fail if it's not handled in the right way so I do think it needs some really careful thinking. I think often for that next-gen, if they do want to do it, which is great, they're going to need a lot of support, both internally and externally. So we often find that next-gen leaders will probably spend a lot more time even in comparison to a non-family business leader trained. They're going through training and external experiences and education, to get themselves ready for that role. So they feel they probably have to credentialise themselves even more than some of their contemporaries, to really prove that they've got what it takes to step into that role in the business. So they will often undergo a lot more training and educational experiences than maybe others would. And that's important as part of their journey. It's not an easy position to be in, but I think if they're up for it, and they've got the skills, they can definitely achieve it, they just need the support in place.
Esiri: And I liked how you say if they are up for it because it's very possible also, not to be up for it. And then you have to consider external parties as well. Founders also need to prep their minds for bringing in external parties. Succession doesn't necessarily mean it has to go to the family. Do any examples come to mind, maybe of third parties that have taken on the reins in managing family businesses, and maybe the family then comes in later, you know, is it a model that work? s
Clare: Yeah, definitely, you know, we've seen lots, you know, particularly in the UK, where you'll have an executive team that may consist of just non-family members, got no family acting in that executive capacity. And by that, I mean, like a CEO, COO, or a CFO, they're all external. They're all non-family members who go on to take this role. But then you'll have the family members who may be acting as directors. So this is where governance becomes important, you know, you've got your board of directors, which could be family, non-family, then you have your executive team, you really are responsible for the day-to-day operation and that could all be non-family.
And I think when you start to evolve your governance systems, for family, it can then become much easier to think through, “Where can I sit, because I don't think I'm going to be a great CEO. Even if mom and dad think I might be, I think I could be a good director. And that means I'm still involved in the company, and I'm still at the top overseeing things, but I've got somebody else doing the role that I'm probably not suited for.” And so I think it can, it can work well. People just get worried that they're losing control. And they're putting too much faith in people that aren't from the family. But I think, if they've got the skills, the training, the attitude, and the enthusiasm to do it, and you still got some of that, you've got the family oversight there, then it can work. We see that work in countless examples, both in the UK and elsewhere across the world.
Esiri: Perfect. And you know, Clare, when we started, there were two key things you talked about: Preparedness and Communication. So let's just look a bit at communication. How best to communicate that big picture, and articulate to your family that, this is what that succession plan looks like. Away from the business, you know, is there a document or a bid that we need to build out in over a 10-year period to say, this is how it's going to be. And then at this year five, for instance, I take a step back as CEO, and then I'm chairman, and this is how it would affect remuneration or the benefits I get from the business. And at this point, this is where the next-gen comes in, for instance. So just kind of lay out practically, what communication looks like when it comes to a succession plan.
Clare: Yeah, definitely. And I think the starting point really is thinking through your vision for that business over the long term. So do you see this as a business that will pass into the hands of the next generation? And if so, why? Why do you think that's going to happen? Do you think it's such an important business that has got the ability to sustain itself for a long period of time that it can easily be transferred to the next generation with the right governance framework in place? So I think the starting point is, What's this vision for this business? Is this a long, long-term business, with the right governance in place can succeed and be passed down into the hands of the next generation? I think the second part of that then is communicating that vision and being clear to the family. Look, I think this is a great business. And I want it to keep going. And I want you guys to be involved in taking this over. And if everyone feels like that's something they want to be part of, the next question is how? How do we actually do that? And I think that then starts turning on the detail, really of, okay, so if we're to pass this down, what does that mean for us as a family? You know, are we going to just, the conversation we were having a minute ago, are we just going to be owners? Are we going to be also working in the business? If so, what support and training do we need to take on those roles? What does our governance structure look like as a whole to enable us as a family to own and manage this business successfully? And so for many families, once they start this process, they'll often bring in external people to help them and give them advice on what they think their vision is, and how they feel they want to get there and stress testing that with others who've seen other family businesses and can advise on one of the key aspects they need to consider in more detail. And ordinarily, I'd say most families will go through the process of starting to create a form of family constitution, which just sets out the key kind of goals of the family around one, we want to keep this business going, we want to pass it down. And to enable us to do this, these are sort of the aspects we'll have to have in place to make that work. So they'll have sections dealing with roles and people, what corporate governance is needed, from a family perspective, who should be involved, who shouldn't be involved, what their values are, as a family when it comes to making decisions and running the business, and so on. It will encompass a range of areas, but really, it's the terms of reference document that sets out to that family. Yes, we want to keep this business going. And here are the rules by which we'll play by to ensure that that happens successfully. So ordinarily, you would have some form of family constitution, but then that has to be brought into practice and they have to kind of make sure that what they're saying is actually happening. So how they’re actually going to get around the business and make sure that they're meeting regularly, they're discussing things openly as a family, they're getting the right training and support, they're bringing in external people to help them and so on. So actually, at one level there’s the thinking and the documenting, and then the next stage is actually then the doing, and that all takes time, I'd say when you're thinking about succession quite critically, it does take time. And actually, it often means bringing about some changes with cultural changes as to how you do things. And that's not going to happen quickly. But I think, for most families with a real focus on this, they will stick with it. And they'll just make sure they've got some good people by their side, external people who will support them with that over the long term. But essentially, I think that's the sort of governance journey that most families start to go on when they're looking at this.
Esiri: Hmm, yeah. Thank you so much, Clare. Just as we close, the final question. I know you guys just launched, Hatfield just launched, I think it’s ‘Lessons in Legacy’?
Clare: Yeah, that's right.
Esiri: Yeah, maybe you could talk a bit about that, and maybe some key recommendations that we could take away from that publication.
Clare: Yeah. Thank you, we did. So as you mentioned, Boodle Hatfield has been advising families for 300 years this year. To celebrate our 300th anniversary, we wanted to kind of reflect on, “What does legacy mean?” to our clients. You know, we've thought a lot about our legacy as a firm. And actually, what does it mean to our clients, and we ran a survey with a number of our clients and contacts and what's been coming out of that is, you know, a lot of families are really questioning actually, “Should we just pass on all the wealth down to the next generation?”
You know, families have been very successful and have accumulated a lot of wealth in addition to the business, they are critically thinking about, “Do we need to pass all of this down and keep on preserving, preserving, preserving?” I think a lot of families, particularly in the UK, are looking at some of the issues in society, particularly around wealth inequality, climate change and thinking, “how can we make a difference here?” because, you know, we've created a great legacy in terms of the business we've built and the wealth we've built but actually, how can we make sure we're putting that to good use? So we're finding there's real growth and interest in philanthropy. A lot of families now are thinking, “how do we start to give more of our wealth away?”, there's greater interest in sustainable investments. So again, people think, well, there are a lot of problems in the world right now. So which are the companies out there that are trying to make a real difference and solve some of these problems? And can I put money into those projects alongside my philanthropy, but interesting, we're also finding that some you know, some wealth holders are questioning actually, “do I want to have all this wealth, you know, I can do my philanthropy and my sustainable investment. So actually, should I be a bit more ambitious about how much I want to give away? What do I need to keep me happy and have a good quality of life? And actually, what don't I need?” So there are some really quite forward-thinking disruptive discussions out there around what it means to be wealthy and the role that the wealthy play in society, whether they give more away, whether they pay more, they look to pay the most they can in taxes, you know, some quite interesting things happening in terms of discussions around what it means to be wealthy. And so I think from a legacy perspective, our clients are recognizing that there’s a lot they can achieve. So in terms of legacy, they're really thinking through, critically about how their legacy can make a difference to the world and the problems we are experiencing.
Esiri: Yeah, and I think that is a conversation that also needs to be had in terms of outlining the vision, and also defining what the succession plan might look like.
Clare: Exactly, exactly. Yeah, I think that's really, because if you're looking to do more in terms of philanthropy, sustainable investments, thinking about, you know, your tax position, and how you want to contribute more to society through taxes that’s starting to impact the design of your structures that will enable all of that to happen, particularly after your lifetime. So yeah, that's, it's a fascinating time to be in our industry right now. There are some very disruptive challenges coming our way, which I enjoy tackling.
Esiri: Absolutely. And on that note, what I can confidently say is we have debunked the myth. Succession Planning is not about retirement and you don't have to wait till you're ready to retire before you do it. Because there's a whole lot of discussion that needs to go into that. I mean, we've talked about sustainability just now, we’ve talked about tax, we've talked about the rules, the people, we’ve talked about the natural heirs or not, whether in the family or the business, so a lot to think of, and it's not something that will go away in a day. Clare, I wish we could stay on longer. It was so much fun, catching up again, and having this enlightening discussion. Thank you Clare, and to our listeners, thank you for listening to this episode of Next Gen Talks.
Clare: Thanks so much, Esiri. It's been great.
