Governance Bites #129: succession in family businesses, with Sandy Kimpton

In this episode of Governance Bites, Mark Banicevich sits down with family governance expert Sandy Kimpton to discuss a crucial topic: what is true intergenerational success?
Discover why family governance is about more than just wealth management; it's about developing human capital and preserving your family’s legacy and values. Sandy explains the power of "operating with intentionality", providing practical steps to align family and business. Learn how a long-term family perspective differs from short-term business thinking  and why an independent voice on a family council is essential.
Website: https://kimptonandco.co/
Reference: Freakonomics episode #38, The Church of "Scionology", https://open.spotify.com/episode/1yKHPJ2mBeTqxMRIRYddb9
https://freakonomics.com/2011/08/the-church-of-scionology-yuengling-beer-gallery/
Succession can make or break a family legacy. In this episode of Governance Bites, Mark Banicevich sits down with expert Sandy Kimpton, who draws on 30 years of experience within family-owned enterprises.
They tackle the tough questions: What makes succession in family firms so different? When should you start planning? And how do you manage the tension between family expectations and business needs? 
Discover why clear communication is essential  and learn the one piece of advice that could save your business: “the family business is not the family nursery”.
#FamilyBusiness, #SuccessionPlanning, #Governance, #Leadership, #BusinessSuccession, #NextGeneration, #CorporateGovernance, #BoardOfDirectors, #FamilyLegacy, #BusinessStrategy, #Entrepreneurship, #GovernanceBites

Transcript

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Hi, my name's Sandy Kimpton, and I'm speaking today with Mark. Mark, I'll let you introduce yourself. It's your podcast. But today we're talking about succession in family businesses. And I have a background in finance, as an accountant, and a professional career that spanned about 30 years working predominantly in New Zealand's family-owned enterprises. So, seen this topic play out in a few areas and looking forward to chatting to you about it, Mark. Hi. Welcome to Governance Bites. My name is Mark Banicevich and as you just heard again, I have the pleasure of spending time with Sandy Kimpton. Sandy, thank you very much for your time. We're talking today about succession in family businesses. You've got a lot of experience in this area, although you've also spent a lot of time in the corporate world, as well, particularly in motor vehicles, you mentioned earlier. Was it Hyundai you worked for. Yes, yes, but that actually is a family-owned business, - Right. - JV [joint venture] between two successful New Zealand families. Right, the New Zealand operation, yes. Okay, so conversation around family businesses and succession therein, what makes succession in family firms different from succession in other companies? Expectations. And there is often an expectation that this needs to be headed by a family member, or that it is a space for the family members to come and have a career, which may or may not be relevant or appropriate. So you've got the challenge of finding the right person for the role, or breeding the right person for the role and training them up into it. Correct. Right. When should families then start thinking about succession? Well, I know that this conversation is specifically around the family business, or around the business. I've always gone into a role as a professional, assuming that I should be looking for my 2IC [second in command] the day I start. Because once you have, you know, you always want to be constantly curious and learning and developing and growing. And so you should be doing that in your role, as well. And for you to think for the best of the business, if I'm going to go on and do the next thing that challenges and grows me, then who should be filling my seat? So I would say for a family business that it should always be part of the overall governance of thinking about the business is, who are going to be the next people in the right roles for this? The challenge with a family business, I would see relative to a non-family business, is the generational gaps. So if you've got somebody who's leading the business now who may be the matriarch or patriarch and they're looking to step away from the business, the person in the next generation might be 15, 20 years behind. How do you bridge that gap then? And so how early do you have to start grooming that next generation to be ready when they may be? You see there's a couple of different, I have a couple of different views on that, Mark. One is that that assumes that that family member even wants to be in the business. Yes. And I have a view that for a family enterprise to really be working well you want every individual to be happily thriving in their own right. None left behind, and the enterprise as a whole flourishing. And this might not be appropriate to say on on this, your YouTube, but you know I think sometimes it's a little arrogant of us to say,"Well, I expect my great-grandchild to be as super excited about this is as I am." Making paperclips, for example. Yes. Yeah, the world in 10, 20, 30 years is going to look very different. They've grown up in a different environment. The pressures, the demands, the, what is exciting now versus what is exciting. Now, there's aspects and there's ways and there's spin-offs and there's all those things, that that may be absolutely the case, but I don't think the start point is an expectation. And so that's that piece around that, that I think it's, you know, you're always thinking of who is the next right person for leading this organisation relative to its business life cycle. And it seems to me then, based on what you're saying, that while you may want it to be somebody within the family, you should always be prepared that maybe it isn't. Correct. And maybe, again, it comes back to intentionality, something I know we've talked about previously, is what do you really want from this business? And if it's about filling out your passion, great, enjoy that while it's yours. But that's very different to thinking about it as being one of the family assets. Where you are the current caretakers or stewards of ensuring this does its best and contributes best into the family, and continues to do its thing. There's some interesting research I think I heard on a podcast a year or so ago around the, [Freakonomics episode #38, The Church of "Scionology"] this was actually from the US and thinking a little bit more globally, around the success of businesses with intergenerational takeovers and how generally the businesses declined in performance. And one exception unusually was Japan, but digging into that a little bit further, they discovered that the new in that case, patriarch taking over the family business, was quite often adopted into the family. Aha, funny. So it was a very sneaky way of overcoming that challenge, wasn't it? What are these... Well, even just thinking a little bit more on those age gaps. I mean, you think of an ordinary business cycle. You have startups, scaling, mature, and decline or reinvent. Yes. And so you need a different leader even in those organisations. And so you know, you need to know who you are, if you're the entrepreneur, that's great. Is there anybody, when a business has reached a point of maturity, it's who's the right person to lead a mature business? Yes, yeah, absolutely, having the right skill sets. What are the essential elements of a robust succession plan then? It is understanding what is, where the business is in that life cycle. Yes. It is understanding what are the right skill sets relative to the environment and the culture. I think it is, it's all those things, you know, the best person for the right job. But I think critically within family businesses, it's also ensuring that you have embedded in guardrails that ensure that you keep what you value as a family still in place. So if I use some examples of that, you want to have, if they're non-family members running that business, you want them to be operating with a layer of freedom and autonomy, otherwise you're not going to get great leaders. Yes. But they do need to know where the boundaries are. So a very simple example of that is, "You can make any decision up to this point."But these decisions are mine or the family's only." Right, okay. Do you tend to write your succession plans down, do they tend to be written documents, or do they tend to be sitting in people's heads? I think at a level of governance across the business, you always want to have some layer of discussion on a semi-regular basis that might only be yearly, but, "Are we in the right place? Where are we really at?" It should be part of your annual or six-monthly strategic plan discussions. Right, right. So coming to your strategic planning, coming to your board minutes and so forth from your governance meetings. To a level, yeah. I remember being in a business, and yes, it was a family business, where we were actively going, who are our next layer of potential leaders? What skills do we need them to grow? How do we mentally, how do we actively develop that? Right, yes. How do you balance formal governance processes with family dynamics in the succession planning in a family business? It comes back to those core documents that you've developed as a family. And we've had previous conversations and we've talked about this via family councils and things. And it's the interlap and where these values won't be breached, these decision make, these decisions won't be, you know, will always remain with the family, these, you know, this is the sort of guidelines around money, all those kind of things, so when you're sitting in a governance board in a family business, you are, you always have that sense of, it has to be the right decision for the business, but it equally has to be the right decision for the family in the longer term. Right, right. What role should the board or independent directors play in guiding the succession for a family business? I think the role that in some instances, there is a need for that layer of independence that that is prepared to go,"Hang on a minute, just because they are the oldest, or they're the one who are excited about this,"or they are the one. Do they?" Let's remember what we really are here for. We want the right outcome for the business, how do we either train that person, or direct them in a way that they're satisfied, they're comfortable, the family are not aggrieved, But it's still the right outcome for the business. So they bring a degree of objectivity to the conversation. Correct. And rationality sometimes when emotion can override in the forum like that. Yeah. And I think, you know, you mentioned earlier about how early do you need to do this. And particularly in family businesses, it needs to be early, before there is a layer of expectations. Before the kids go and sort of assume, well, I might have this name, so therefore I am. Yeah. I have an example of that of one of my martial arts student families actually when I was teaching martial arts. They had a family business that was multi-generational and they were, I was teaching I think the three- or four-year-old. And the father was saying that of three or four children, the three or four-year-old was likely to be the one that would take over the business. They were looking at it that far along. And that was, actually, I can't remember if it was fourth or fifth generation business. It was a long established business. So it was really interesting to have those conversations with him. Yeah, and I mean, obviously, for the purpose of integrity, I'm not going to give you any examples, but I've seen, unfortunately, a number of really ugly situations where those expectations and the damage sometimes, like imagine a three-year-old having to grow up discovering that their whole life, they have no choice, basically. That's tough. Yeah, yes. Fortunately, I don't think that was the case. It was just him thinking that was the one that looked most likely. How do you manage the tension between the family expectations that we're just talking about and what the business needs? With communication. Clear communication. And again, it's something we really promote within my business when you're sitting with working with families is, let's have no surprises. You know, let's have everybody clear on, what does this really mean? What's this business mean for the family? Where is its place? But what, you know, so the more those conversations have happened, the better it is. If everyone around the table is aware of the situation, they understand it. Right, yes. Who should then drive the succession process? Is it the board of the company, the family council, or the current leader, or some other? We're talking specifically around the family business, and I think it needs to be relative to the business, and so that generally is, it depends on how the how that governance structure is set up with the business. I sit on, I've sat on formal boards who are fundamentally decision makers. I've sat on advisory boards, and advisory boards can go, you know, they're fundamentally performance driven. Now, some are more inclined to go, well, I sit on a board currently, we're literally just the sounding board for the owners. The owners will be making the decisions every night and day. And we'll bring some sanity, we'll cross-check the thinking, we'll do those things, but ultimately it's always their decision. I've been on advisory boards that are a lot more just project specific, in which case they might be, can you come in and help us do X, Y, and Z. So, does that answer your question? Well, ultimately, it sounds like, taking from what you're saying, the role of the board, whoever that may be, the directors of the company, is to act in the best interests of the company. So when they're looking at a succession plan, they have to look at the best interests of the company. And the family's involvement in that through the family council may be to put some people forward and be involved in ensuring their training to get the right skills, but ultimately it has to be the decision of the directors of the company. If you have a fundamental, if you have a formal governance board in place, yes. Well, in any case, you've got directors. Whether it's a formal governance board or not, you're going to have directors of the company, right. And they're the ones that are responsible for doing that. Well, sometimes in advisory boards, they're not formal directors. No. So you don't have that same level of, not quite the same. Yes, same level of authority or obligation. Correct. Yes, yeah. What then happens if the next generation isn't ready or they're not interested? Well, how is that a problem if you're looking for the right skill set and the right set of people? and also if you have put those guide rails carefully curated, and you know we do a bit of work with, quite a lot of work in this space with families, with family businesses, and say that they're, you want to create situations where independent leaders are operating with enough independence that they don't feel hamestrung - Yes. - but within boundaries. So they have freedom within some very clear boundaries. And that way, then when their time is up, there might be time for the family member. Right. It can ebb and flow. Right, I was going to say, so you see examples there where you've got a family member that might be leading the business now, perhaps the original entrepreneur. The family successor isn't ready, they put somebody else in the interim who then potentially mentors the family member to take over when it's their time, or just see what happens. Potentially, yep, you could have that. You could equally see an entire generation that doesn't get excited or fit, I know a situation where, but the great grandkids love the business. Right. So, great. Yes, okay. A more general question to finish us off then, what's the most common advice that you give to family businesses about succession? That the family business is not the family nursery. Short and succinct. Right. It says it all, right. It does. And don't destroy the family business because of not having those expectations in place up in front, and in a way that everyone knows them before, you know. Like, let's have this business doing the right thing for the family. Yes, by doing the right thing for the business. Correct. Right. Right, Sandy, again, thank you very much for your time. It's been a really interesting conversation. I'll look forward to seeing you again soon, and seeing you next episode. Thanks very much, Mark. Always fun talking to you. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel, where I interview directors and experts on various topics relating to boards of directors and governance. We'd love to see you back, and please like, subscribe and share the videos and podcasts.