Succession Planning: Part 1

Guest post by Samuel G. Njenga

We have seen it happening. Some hardworking chap struggles to set up a business that becomes an empire. Soon after transition, the empire collapse like a stack of dominos. Or you could have noticed a cycle in family fortunes that change from generation to generation. One generation finds nothing to inherit, and then they struggle so hard and by the time they are going home they leave massive wealth. The generation that inherits the wealth and the businesses that they got on a silver platter squander the wealth and die poor only for the next one to redo the cycle.

Succession planning is crucial for any company. Importantly so, even at a personal level it is still absolutely necessary. But trust people to keep deep lying and long standing secrets of their business away from their wives and kids where they have absolutely no idea of how to run your business after you are gone. So then, how best do you get your kids in the mix?

Proverbs 22:6 teaches us to 'train a child in the way he should go; even when he is old he will not depart from it.'

Teach them the value of hard work and that money does not come from above. Some simple things like ensuring that the small cash they receive from you is well utilized. Let them learn the good habits of managing the little they got. Being frugal becomes something they treasure. Let them know that were it not the case, they’d probably not be enjoying the good life.

Entrepreneurship starts early…enroll then to entrepreneurial courses if you must…Let them start small home businesses like rearing rabbits for sale…chicken etc if possible…Personally by the time I was in class 5 I had so many rabbits that I had raised and was selling…It taught me a few things about business at a tender age. Get them understand your business operation-wise. Give them some role in the set up. Observe and where necessary guide them. Let them graduate slowly from small roles to bigger roles gradually ability is demonstrated. At some point let them even get some shareholding in the company. Somehow they’ll understand the intricacies of the business and they’ll own it. Slowly by slowly relinquish your hold on the company but keep an eye on the manner it is being managed. In your sunset years you’ll probably own like 5% and the rest distributed amongst your heirs. Teach them the essence of teamwork and drawing into each other’s strength.

Someday I was buying some land from a company owned by the family of a big shot (former politician and cabinet minister, name withheld). When I received the completion documents, they included a CR12. This is a document that outlines the ownership of a company as per the records at the registrar of companies. I actually realized the shareholding was distributed amongst the former minister (5%) and the rest between the daughter and son. It is amazing because the daughter was only 23 at that time and the son 32. The company had expansive lands all over and the son and daughter are the ones who signed the documents and the father remained in the background. I noted that the daughter is very knowledgeable on land matter and at her age that was quite impressive.

This is an open secret among the Indian communities who run family business empires across generations. The father inducts the son or daughter in the management of the business and finally goes in the background without loosing grip of the business until the next generations can prove to him that they are capable of running on their own.  I think it is very inspiring to see your children running successfully your business empire. Others families employ a CEO to run their businesses but remain in the board. Whichever the approach, succession planning is absolutely necessary.

Next post will dwell more on succession planning and avoiding conflicts.