KPMG to discuss family governance and business governance in succession

To realise the potential and further strengthen local family businesses, KPMG in Sri Lanka has had several discussions and workshops over the past two years. The importance of governance in family businesses and succession planning are aspects that have created a lot of interest in Sri Lanka. Why has succession become a challenging transition process in family businesses? KPMG shares some key aspects based on our experience working with family businesses. 

Building great businesses take a great amount of drive, perseverance and dedication. Starting a business as an entrepreneur takes courage. However, to build a business geared to thrive and grow over generations takes a visionary. These founders are extraordinary individuals who are driven by a great amount of passion. 

It is not surprising that such founders find it difficult to let go!  

‘They cannot do what we do’. We often hear this from current generation business owners when it comes to identifying successors. 

Succession is a sensitive transition process. So why do we find that most businesses struggle in this process? Why do some businesses find themselves in more tragic circumstances of family conflict or business decline? We must ask ourselves, “Are we setting up successors to fail?”

We have seen some common issues that almost all families encounter:

• The elusive expectation gap – Founders expect the same level of commitment from their successors. Successors find themselves struggling to live up to parental expectations and their own aspirations. 
• Management roles are vague and undefined. The current generation managing the business have undefined roles. If the founder or current generation is removed from the business a huge void is created out of lack of processes, controls and resources. The shoe the successor is expected to fit into is quite larger than life at this point. 
• Is it a career? – Some successors do not see a defined career path or even an organised structure in the family business. The reluctance to join lies in the uncertainty of this. Clear communication of a career path and performance criteria is key to make the business an attractive option
• Succession is considered an overnight process – Successors are plugged in at the top and expected to sail smooth with no prior experience or training. Once successors are thrown into the deep end without support, businesses generally suffer whilst waiting for the successors to learn to swim. 
• Is the cake big enough for everyone? – As the generations grow, the business should be large enough to accommodate the needs of the growing family. Successors generally lose interest when the business cannot maintain their lifestyle and livelihood. There is the need to address this at an early stage.
• Who will manage the business? – As generations grow not all family members can be the CEO of the business. Clear family rules help define pre-requisites to join the business. Communication of these rules is key to ensuring that there is no misunderstanding, resulting in family conflict. 
• Is there a dynastic intention? – Is the entire family clear that the business should remain within the family for future generations? If so, does the business suffer at the cost of family needs? Is this the healthiest option for the family harmony as well? It is important that all family business owners take a conscious decision to do what is best for the business? From cutting back expenses to appointing a professional management. 

In order to address all these aspects, it is very important to define governance for both the family and for the business as early as possible. The principle of ‘prevention is better than cure’ applies to family businesses as well. It is easier to prevent any future issues than resolve them. Once a governance structure is put in place, expectations are clear to the family and in the business. This will in turn create a sustainable business for the family. 

Given the importance of raising awareness, and ensuring the success of our local family businesses, the Family Business and Board Advisory Division of KPMG Sri Lanka has organised a round table discussion on 17 November at the Ramada Hotel Colombo. Richard Cooper who is a Family Business Advisor in KPMG Australia will be the presenter for the evening. Richard is a Senior Manager and member of KPMG’s Private Enterprise, Advisory Group based in Brisbane. 

He has 12 years’ experience in supporting family clients with: Establishing effective family and business governance structures, parallel planning so the goals and strategies of the family and the business are aligned, planning for the orderly transition of the next generation into the business and the continuity of family management and ownership of the business over the long term. Suren Rajakarier and Thamali Rodrigo, Partners of KPMG Sri Lanka will facilitate the discussion to explore issues noted above and the possible strategies to adopt in particular circumstances.