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Ralph Moyle Inc. Chief Financial Officer Jon Moyle on family business succession planning: “It’s never too early to start the process of thinking about who is going to take over next and how we best prepare them for a successful transition.” Ralph Moyle Inc. Chief Financial Officer Jon Moyle on family business succession planning: “It’s never too early to start the process of thinking about who is going to take over next and how we best prepare them for a successful transition.” COURTESY PHOTO

Most family-owned businesses continue to lack formal succession plans

BY Sunday, September 13, 2020 05:07pm

Results from a recent global survey show most family-owned businesses in West Michigan still lack a formal succession plan to transition the company to the next generation of leadership.

Just 18 percent of the CEOs at family-owned businesses surveyed in West Michigan had a formal plan in place, according to the 2019 STEP Global Family Business Survey. The number is about the same as findings from an in-depth analysis of family owned-businesses six years ago by Grand Valley State University

The findings — in both 2019 and 2014 — come despite an awareness by leaders at family-owned businesses of the need to have a plan and process to guide the company’s transition to the next generation or owner.

“It doesn’t matter who you’re asking, they always will tell you, ‘We know, we are absolutely certain that succession is key, it is absolutely important,’” said Ana Gonzalez, director of GVSU’s Family Owned Business Institute. “But when you ask them, ‘Do you have a succession plan?’ the answer mainly — around the world and overwhelmingly — is ‘no.’”

Globally, the STEP survey convened by Babson College in Wellesley, Mass., of more than 1,800 family-owned businesses in 33 countries found that 70 percent lack a formal succession plan even as new CEOs from the Millennial generation are ready to take over and have the highest level of education.

Planning ahead

In many instances the survey responses came from leaders at family-owned businesses who themselves assumed their role without a formal plan or process.

“When I talk to current CEOs in families, they all tell me there wasn’t really a succession plan,” Gonzalez said, adding it was often an informal or assumed passing of the torch. But the process involves several components. 

“For different reasons they tell you there’s no need for a succession plan, as if succession is the only decision,” Gonzalez said. 

That process will improve the chances of a smooth transition, ensuring that a new leader is prepared to take over and equipped with skills to run the company. As well, a formal process laying out steps in a transition also will prepare the management team, employees and company for the new leader, Gonzalez said.

She and others say a transition that’s planned out should occur over a period of years and involve the younger generation working across multiple areas of the business to increasingly take on greater responsibilities over time.

That’s how it worked out at Ralph Moyle Inc., a transportation and warehousing company in Mattawan started in 1966. Passing on the company to a younger generation was always on the mind of founder Ralph Moyle, according to his son and present CFO, Jon Moyle.

Moyle and his brother — COO Mike Moyle — run the company day to day and are co-owners. Their father Ralph, at 88 years old, remains as CEO and today serves mostly as an advisor, Jon Moyle said.

Mike began working for the company in 1984 after graduating from high school and learned the business “from the ground up,” said Jon Moyle, who joined the company in 1991 after graduating from college intending to go into banking. 

A recession making jobs scarce at the time altered the plan, leading Jon Moyle to start at the family company as a dispatcher. After a couple of years, he “realized the opportunity to control my own destiny a little more, and to make decisions that were important and impactful, and also to see some opportunity to help the business grow,” Moyle said.

The timing also worked as Ralph Moyle turned more of the day-to-day operations over to his sons as they were learning the business.

‘Never too early’

The Moyle brothers are in their early 50s and today are “trying to be more intentional” about the next steps and transitioning operational control of the company while replicating their knowledge and experience to others, Jon Moyle said.

He urges other families to keep in mind what happens to the business long term and to groom the next generation to eventually take over.

“It’s never too early to start the process of thinking about who is going to take over next and how we best prepare them for a successful transition,” Moyle said.

The lack of formality in succession planning for family-owned businesses stems from several reasons, Gonzalez said. Among them is a presumption that a certain son or daughter will someday run the business and they are already preparing them for that day, so a formal plan isn’t necessary.

“So, maybe they don’t have that formality, therefore they think there is no plan,” Gonzalez said.

There are also instances in which new leadership had to step in quickly when a parent who was leading the company became ill or even died suddenly.

When that happens, having a plan to guide decision-making, spell out the responsibilities and actions of surviving family members, and identify who takes over the leadership role can ease the transition at a difficult time and keep the company going.

“If you don’t have a succession plan by the time you’re 65, maybe you should come up with it. You need to have something figured out,” Gonzalez said.

In the STEP Global Family Business Survey, more than half of responding CEOs said they plan to retire when they are 61 to 70 years old, and 27 percent planned to retire when they were older.

Nearly half of family business leaders globally and 60 percent in North America had an emergency plan in place for succession “in case of unexpected events,” according to the survey results.

Gonzalez urges families to at least talk about succession and create an explicit understanding about the next leader, even if it doesn’t lead to an actual formal plan or legal document to follow. That conversation should begin years before the present family member who leads the company considers retiring, she said.

“Just start talking about it. You don’t have to come up with a document. You don’t have to seal it and stamp it or anything, but just start those conversations when it comes to succession,” Gonzalez said. “And don’t make assumptions that because you said things in the past — if you are the leader — that your family is all set if anything happens to you.”

Unpredictable events

Tami Sytsma, a wealth adviser who owns Sytsma Wealth Strategies LLC in Grand Rapids, recalls the story of a recent client whose family owned a local manufacturer. The family member running the company died suddenly without a succession plan for the company or clear understanding about who would run it. No one in management had the ability to buy the company, and the surviving spouse ended up closing the business and liquidating the assets, Sytsma said.

While roughly 20 percent of family-owned businesses have a formal succession plan, Sytsma said some families are more proactive than others in planning future leadership.

“Most business owners maybe have a thought in mind on what they think should happen, but it’s not something that’s been planned out or spoken to the next generation,” said Sytsma, who’s active in the Family Business Alliance in Grand Rapids and the local chapter of the Exit Planning Institute, both of which emphasize succession planning.

That lack of planning often stems from the parent owners not wanting to let go “because it’s their baby,” or a belief that an heir can’t “sufficiently run the business,” she said.

Other times there’s simply a lack of a next generation in the family who wants to take it on, or business leaders “are just so busy trying to run the business they don’t think about it until they look up one day and say, ‘Oh, I guess I wasn’t thinking about this. Now what?’” Sytsma said.

Succession planning is a constant point Sytsma discusses with clients who own a business.

“The family business owners that get it right are the ones that talk with their children early on about what it means to own the business, what it looks like to work in the business, and what it looks like to run the business, and kind of have it in the works from day one so it’s not this drastic change. Leadership was always on the table for them,” Sytsma said, adding that unpredictable events can drastically shift the course of a business. “A business always needs to be prepared for: ‘What if I’m not there tomorrow? Who’s going to take over?’” 

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