Covid pandemic a wake-up call to family-owned businesses on importance of succession planning

PETALING JAYA: The Covid-19 pandemic is a wake-up call to family enterprises to establish a succession plan and prepare for the next unexpected personal or worldwide crisis, according to Rockwills Advisory Services Sdn Bhd general manager Jason Tham Jiessen (pix).

Tham said many small enterprise founders meet their family members more often during the stay-at-home and movement control order periods that give them the space to talk about the future and the structure of the business. Hence they can adapt to the pandemic and make plans for what follows.

“Many business owners did not foresee that the Covid-19 pandemic could last so long. Enquiries on estate and business succession in company planning surged in June and July. They asked us about planning, business successors, business models and how they want to solidify their position in the market,” he told SunBiz in an interview.

He said the pandemic is teaching family businesses many lessons about preparedness, agility, and adaptation.

“Now they realise they cannot put all eggs in one basket. They have to ensure when certain restrictions happen, they have backup plans for the business to operate without any disruptions.

“Many business owners expect the pandemic and the new norm to last for another two to three years. They have moved their offices to their homes and only use online platforms to communicate with employees. They are already used to this working environment,” Tham said.

He said this includes having many of their workers work remotely and adapt to a new virtual environment. Some businesses shut down temporarily while others changed their business model completely.

“Some positions are removed, such as front desk staff as payment and orders have shifted online. Many family enterprises have reduced staff strength to invest in developing and enhancing electronic and online systems,” he said.

Tham recommended three major steps that family-owned businesses should follow, to create a viable succession plan including ownership succession, management succession, and distribution of income.

“The goal of the family business founders on succession planning is to unite the family members and to ensure the family business is still managed by the family after the founder is no longer around.

“Most of the cases we handled are clients with private limited business entities. There are two important roles in private companies, the shareholder and the director. Usually, the business owner is also the director and the shareholder.

“We will advise them on how to pass the shares to the next of kin to avoid fragmentation of the shares and who should be the director to run the business,” Tham said, adding that without a succession plan, the business owner creates a time bomb that not only destroys the company but also tears apart the family.

He said one of the challenges for a business owner, especially when the owner has a majority share, is the continuation of the business within the family itself.

“Many local businesses fail to train their successors or future generation to run the family business. When their children do not want to run the business we will suggest that the client identify a key person to operate the business.

“It is not necessary to have the next of kin to run the family business. The founder’s children can be the shareholders to receive the dividend. For operations, they can hire CEOs and directors to run the business. Porsche and Volkswagen are good examples of family business continuation,” Tham said.

There are two timelines for succession planning, he said – the family trust is for those who want an 80-year planning which is meant for three generations, while the family foundation is for 10 or more generations, which is perpetual.