An entire ship will grapple with uncertainty when a new captain takes over the wheel. Questions will undoubtedly run through the mind of every crew member. Can they safely steer the vessel through uncharted waters? Will the journey forward be as smooth as it has been thus far, or are we in for a bumpy ride? More importantly, why place the future and livelihoods of an entire organisation in the hands of someone completely green?
Did you know that 85% of Asia’s billionaires are still planted firmly in the decision-making seats of their family businesses with no successors? On the whole, APAC also lags behind in succession planning at an enterprise level with only 50% of family enterprises having clear succession plans in place.
Why Asian family businesses lack successors
Sometimes, the reasons for holding on are logistic. Not every family business has willing successors. With each generation, the number of willing successors gets lower. In a joint study between Deloitte and Singapore Management University (SMU), 77% of first-generation respondents believed that family members should be in charge of their business. That number falls to 24% amongst third generation respondents.
Other reasons may appear less pragmatic, but nonetheless should not be discounted. Having done things their own way for decades, family business operators may not be as open to external input when it comes to major business decisions. While 4 in 5 Singapore businesses admit to experiencing family conflict, only 2 in 5 of them have governance policies written in black and white as fail-safes should things go wrong. However, this problem is by no means limited to family businesses.
As much as 80% of clients of high net worth (HNW) individuals in Asia have requested for leadership renewals as the need for a new generation of brains and expertise grows each day. It’s also worth noting that 85% of Asia Pacific companies are owned by family groups.
Succession planning is the elephant in the room that needs to be brought into the spotlight as soon as it can take years to tackle.
The true cost of poor succession planning
With a rapidly ageing population, corporate Asia is on the cusp of intergenerational wealth transition – wealth that can be easily lost if succession plannings are not handled properly. Harvard Business Analysts estimate that S&P 1500 companies lose a collective total of $1 trillion a year due to poor CEO and C-suite transitions. Potential losses are not just limited to fiscal ones, either.
During that time, high profile leaders can cause company share value to tank, employees further down the chain of command to leave, and eventually take several staff along with them when they finally do exit.
Good succession planning starts early
Next generation successors have big shoes to fill. While 77% of APAC businesses have digitalisation listed as a key priority, and far fewer organisations in the region are confident in their existing digital capabilities.
Identifying potential candidates early on, prior to the 12 to 36 month period of preparation, is key. Ideally, leaders should be around to personally guide and groom their successors before they make their exit.
Succession planning does not just happen at the top, either. Especially when CEOs are picked internally. Entire lines of current staff will have to be shifted upwards in order to prevent gaps in the chain of command. HR departments will have their job cut out for them ensuring that candidates are identified and groomed at every single level.
Of course, the option for hiring externally is always there. But external CEO hires are usually more expensive than internal hires. They will also spend more time getting familiar with the ropes and potentially bring in an entire host of external influences that can greatly shake up and company, for better or worse.
Promote fairly and transition smoothly with digital coaching
Succession represents uncertainty, for both leaders and employees alike. Understanding the psychological workings behind our apprehensions over uncertainty can help us tide through times of disruption. Personal coaches can assist leaders on their journey by helping them pry apart the inner workings of both their brains and that of the organisation.
Through CoachHub’s digital transformation platform, leaders and employees can track their progress and skills development in a quantifiable way, allowing decision makers to objectively see when candidates are ready to take over the reigns. Read more about how to become the leader your employees need during these times in our eBook.