Take, for example, Visy Group, a private family business started in 1948 that is now in its third generation. Run by the grandchildren of the founder, Visy ranks as one of the leading packaging, paper and recycling businesses in the world. Through careful succession planning, with a focus on leadership excellence, the business has been retained in family hands for more than 60 years. It has also benefited from an infusion of external management talent capable of running the group’s burgeoning operations.
Yet, unfortunately – and somewhat surprisingly – Australia’s family business sector as a whole is generally unprepared for the process of leadership succession. Most, it seems, do not adequately plan ahead for a changing of the company guard. As such, they expose themselves to a leadership crisis down the track which, in a worst-case scenario, could trigger an untimely end for the family’s business dynasty.
Leadership limbo
The looming leadership crisis was highlighted earlier this year in a joint survey of 5000 Australian family businesses by RMIT University and national accounting firm MGI Australasia. They found that most family businesses were not prepared for succession, but a more alarming finding was that control of the majority of family business is vested in an ageing owner population. More than one-third of family business owner-manager respondents were in the 50-59 years age bracket, and 25 per cent in the 60-69 year age bracket.
“Despite 61 per cent of owners signalling they will have plenty to do in retirement and 67 per cent believing they have adequate funds on which to retire, there is a worrying lack of exit planning being undertaken by ageing family business owners,” the survey found. Only one-third of respondent owners felt their business was in shape to be either sold or passed onto a family business successor, and about 60 per cent of owners indicated that younger generation family members were not as interested in actively managing the family business as the older generation. When it comes to succession, a business’s size is not necessarily an issue in terms of the actual process of transition. Size mainly comes into play when there are multiple family stakeholders involved and, in certain cases, when there are multiple parts of the business that perhaps have different members of the family running them. In some cases, the most sensible outcome in the succession process is to break it up and divide the spoils.
[breakoutbox][breakoutbox_title]Case study 1: Normark Landscapes[/breakoutbox_title][breakoutbox_excerpt]Normark Landscapes looking good[/breakoutbox_excerpt][breakoutbox_content]Melbourne-based garden design and landscape consruction business Normark Landscapes has been on a growth phase for 35 years, ever since brothers Dean and Mark Anderson started their fledgling operation back in 1977. And that growth phase is far from over, with the running of Normark having recently transitioned from Dean, 54, to his two sons, James and Blake, and to long-time employee Danny Ferns, who is now a co-owner.
“My brother Mark decided to leave the business about five years ago, and three years ago I decided to step away from running it full-time and move the business onto my sons James and Blake, and to Danny Ferns,” says Dean Anderson, who is still actively involved in Normark as an employee and remains a director.
Normark currently employs 35 people across four divisions: commercial, domestic, retail and maintenance.
“I still go into the business every day and look after two major clients, and I’m also focusing on adding to the business by increasing the number of schools we do work for,” says Dean. “I don’t get involved in any of the day-to-day stuff at all. I am just happy to provide my input into the business and I enjoy talking to the managers. But I must admit it’s a bit strange having your eldest son as your boss.”
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A complex issue
According to Professor Kosmos Smyrnios of RMIT University’s School of Management, who is also a Foundation Board Member of the International Family Enterprise Research Academy, the issues of leadership and succession – dealing with intergenerational and business sustainability – are extremely complex and bring a whole array of factors into play.
“In terms of leadership the founders, or that generation that it is running the business at that point in time, need to have children who actually go through the process of management and leadership training and grooming,” Smyrnios says. “That’s a key area. As well as the founders being able to identify and recognise and accept the ability of the incoming generation, they also need to enable that whole process to occur. Because it’s not uncommon for those currently in power – in the management or leadership roles – to belittle that up-and-coming generation, believing that they’re really not as good as them.
“But as well you’ve got the issue of the leaders being prepared to cede the business, because it’s also common for them to stay in that business for as long as possible for various reasons. They’ve put a lot of their own personality into the business and it’s often too hard to extract that and leave because of the sense of loss. There’s those types of psycho-social, familial aspects, that are important considerations.”
