Corporate succession
The term corporate succession (in older notation also entrepreneurial succession) comprises the succession process, its requirements, goals and peculiarities. Business successions have different reasons (e.g. old age, illness, death) and diverse alternatives (like inheritance or sale). The succession is a typical topic of the middle class; although in corporations there is often talk of succession when changing management. In medium-sized companies, in addition to the change in the management of a company , the change in ownership also plays a (often central) role.
term
The term corporate succession does not have a uniform definition. Broadly speaking, the term describes the change in personnel in the context of a commercial enterprise. It is applied to various processes:
- the transfer of management responsibility to a new employed managing director or board member in a non-family company,
- the sale of an owner-managed company,
- the establishment of a foundation and the contribution of a company,
- leasing a business
- the “typical” case, the replacement of the father / mother by one or more children as managing partners of a family business.
In corporate succession, Felden and Pfannenschwarz see the management succession first and thus the question of who occupies the top hierarchy level. In addition, the question of ownership succession arises. B. can be realized through the sale of the rights of disposal or in the form of a transfer free of charge. It is irrelevant whether this occurs in the course of an anticipated succession or in the event of death.
Another definition of corporate succession is given by Hauser and Kay from the Institute for SME Research Bonn (IfM Bonn). You only see a company succession when an owner-entrepreneur hands over the management of his company. Accordingly, corporate succession can only occur in owner-managed or family-run companies, i.e. in companies in which up to two natural persons or their family members hold at least 50% of the shares and these natural persons are also part of the company's management.
They see the transition in management of the company as the second characteristic. A mere transfer of ownership without a simultaneous change of management does not, however, from their point of view represent a succession, but a takeover. The third characteristic specifies the reasons for the transfer of management. They must go back to the person of the owner manager. Examples of such reasons are personal reasons, age, accident, illness, death or, under certain circumstances, taking up dependent employment, if this is not due to the economic situation of the company.
Forms of corporate succession
The following table gives an overview of the types of corporate succession in their relationship between management and ownership succession.
| Succession through: | Family members | Mixed forms | Strangers to the family |
|---|---|---|---|
| Ownership succession through: | |||
| Family members | Traditional, purely family-internal succession | Mixed management | Succession of ownership with third party managing director, leasing |
| Mixed forms | Partner, venture capital provider, investment company | Involvement of active partners | z. B. Foundation solutions |
| Strangers to the family | Borderline case: continued employment of family members after a sale | Sale:
|
|
Another distinction in the types of succession can be made between planned, unplanned and unexpected company succession. In the case of the planned successor, a successor is sought in the medium term, from the family, from the company or from outside. In his will , the transferor ensures a clear succession through appropriate dispositions.
Unplanned company successions result from divorces, disputes in the owner family or the entrepreneur's sudden decision to quit. Successful entrepreneurs sometimes develop the desire to leave the company because they have developed enough financial resources to plan their future lives.
A succession is unexpected if it arises due to illness, accident or the death of the entrepreneur. In order to ensure the continued existence of the company in such cases, the company succession must take place here at short notice. Emergency planning is an essential requirement for this. That is why it is all the more important to deal with succession planning at an early stage.
Characteristics of corporate succession
A company succession can arise for various reasons and have very different characteristics.
The following table shows possible forms of corporate succession:
| criteria | Expressions | |
|---|---|---|
| Predictability | planned | unplanned |
| Affiliation | Family successor | external successor |
| trigger | self-determined | externally determined |
| acceptance | friendly | hostile |
| Affected management levels | a level | multiple levels |
| initial situation | solid business base | crisis |
| Strategy continuation | Continuation of the previous business | Change of previous business |
The various forms are of decisive importance for the specific design options for the succession. Many measures have to be planned in advance, so predictability is a crucial success factor. In addition, the desire for a family successor can limit the options. If there is a hostile mood in the company, special consideration must be given to employee issues. If the business base is solid, this makes it easier for the successor to familiarize himself with and increases the chances of continuing or changing the previous business.
Process and phases of corporate succession
The corporate succession can be divided into five phases. This initially includes the information and inventory phase, in which preparatory measures are taken. This includes the assessment of the opportunities and risks of a succession. This phase is followed by the phase of analysis and strategy, in which entrepreneurs and successors carry out situation analyzes. The concept and business plan phase includes the development of a succession concept and the planning of further measures, for example on tax or legal aspects. The implementation and transfer phase deals with the implementation of previously defined steps, which largely include the transfer of ownership. The often overlooked, final phase of departure and life after the transfer deals with aspects related to the entry of the new entrepreneur and the exit of the departing entrepreneur. The following figure illustrates the five phases of corporate succession:
Information and inventory
For the preparation of a company succession, a handover must clarify not only the personal willingness to hand over, but also the entrepreneurial and personal goals associated with the company succession. In addition, the company must be checked for its ability to be handed over so that the successor can generally continue the company successfully. This also includes taking into account a documented emergency plan that can maintain the stability of operations in times of (surprising) crisis situations. The successor should be aware of the individual motivation and define a clear goal in taking over the company. In addition, a preparatory check must be made as to the extent to which the successor is able to meet the company's technical and commercial requirements. Knowledge gaps should be closed through training measures. If several successors take over jointly, it is important that they find a consensus on their ideas and future cooperation. At the end of the inventory, the interests and ideas of all those involved must be reconciled. Potential conflicts and problems should also be addressed.
Analysis and strategy
In this phase, the entrepreneur and successor determine the time of the company handover. The succession process often lasts for at least two to five years, and sometimes longer. The entrepreneur should also clarify the financial needs for the time after leaving the company. Successors should also examine the company more closely in order to be able to better assess whether they really want to succeed the company. To do this, it is essential to include possible risk factors. For example, if the entrepreneur is not ready to “let go”, this could have an effect on his purchase price idea. From the point of view of the successor, it is advisable to identify and evaluate the relevant risks at an early stage. If the assessment is in favor of the takeover, it may be advisable. a. to specify a point in time for the takeover with the entrepreneur. In contrast to internal and external successors, a family-internal successor often benefits not only from financial but also from non-material advantages such as the transfer of knowledge from the entrepreneurial family.
Concept and business plan
Linked to the planning of the individual financial requirements, it is important that the entrepreneur determines the appropriate form of transfer. In addition to the transfer of management responsibility, entrepreneurial assets can also be transferred. There are basically three options:
- free of charge, through a gift or inheritance ,
- against payment, through the sale of the company,
- or by separating ownership and management to delay decisions or avoid a full transfer of ownership.
In principle, the forms of transmission vary with the successor types. In internal or external takeovers, entrepreneurs usually put a price for the entrepreneur's acquisition on the market. In contrast, the company is often given away to a successor within the family. The form of transfer plays an essential role in this phase of the succession process and should be given considerable attention so that the succession process with a certain successor does not fail due to price issues. Numerous legal and tax aspects are linked to the form of transfer. In the conception phase, the successor should already give intensive thought to securing the company's sustainable success. This includes the (further) development of the corporate strategy. Since internal and external successors are subject to payment of a purchase price, options for financing the takeover project should also be explored, for which, for example, regional government subsidies are available. The planning of the steps for a successful company succession should also be concretized early on by the entrepreneur and successor.
Implementation and transmission
This phase deals with the implementation of planning activities and the completion of the transfer of ownership. For this purpose, family and company-internal successors should deal with the understanding of the new role in the company, especially with regard to important stakeholders inside and outside the company. For entrepreneurs and successors, it is important to find out how the succession can be communicated most appropriately to employees and business partners. For example, is there a larger event or are suppliers or customers being visited personally? Aside from the actual transfer of managerial responsibility and assets, it is critical to ensure that the people who are critical to the company's success do not leave the company. By securing key people, it should be ensured that the company can also record successes in the near future without losing central resources due to the change of company.
After the transfer
Often times, individuals participating in corporate succession consider the succession process terminated as soon as ownership has been transferred. However, there are numerous stumbling blocks for the successor, because now the operational work is only tackled in a very concrete way. Ex-entrepreneurs are also facing new challenges, particularly those in the private sector. The early consideration of relevant aspects helps both entrepreneurs and successors to avoid possible surprises or to make them plannable. For the entrepreneur, dealing with aspects of health care could play an essential role. Its role in the company should also be clearly defined. Years of support or even influencing business activities and control processes could, under certain circumstances, have a counterproductive effect if the role of the entrepreneur was originally agreed otherwise with the successor. It is advisable for the entrepreneur to dedicate himself to new activities that he has postponed for decades for operational reasons.
Company succession in Germany
According to estimates by IfM Bonn, there will be successors in 135,000 family businesses across Germany in the period 2014–2018. The term family company is used almost identically to that of the medium-sized company : A company is considered to be medium-sized if it is managed by the owners, i.e. there is a unit of ownership and management. For the years 2018 to 2022, the Institute for SME Research Bonn comes to the conclusion that around 150,000 companies with around 2.4 million employees are about to be handed over.
Of the 135,000 successors in 2014–2018, around half are internal to the family and a further 29% are external to the family. In contrast to family-internal handovers, neither the buyer nor the handover know the buyer well in the case of an external successor, which is why the asymmetrically distributed information typical of a sale represents a special challenge. Sometimes there is no successor for a company ready for handover and it has to be closed. For this reason, the Internet successor exchange of the Federal Ministry for Economic Affairs and Energy, the KfW banking group, the German Chamber of Industry and Commerce, the Central Association of German Crafts, the Federal Association of German Volksbanks and Raiffeisenbanks and the German Savings Banks and Giro Association is ins Been called to life. The aim of the exchange is to bring together entrepreneurs and start-ups interested in the future. Here, previous owners can search for successors and potential successors for suitable companies.
According to estimates by the IfM Bonn from 2010, more than 80% of successors in Germany are age-related. These can be planned differently than succession due to illness or death.
The German Chamber of Commerce and Industry (DIHK) refers in the DIHK report on corporate succession 2018 that due to the lack of corporate successors, the challenges for company owners who are ready to sell are increasing.
Research, miscellaneous
At the University of Siegen there since the winter semester 2007/08 a chair for business succession / Entrepreneurship and Family Business and the School of Economics and Law a chair for business creation and business succession .
literature
- Klein-Blenkers: Company succession in numbers . Journal of Inheritance Law and Corporate Succession (ZEV) 2001, p. 329.
- Hans-Georg Huber / Heribert Sterr-Kölln: Succession in family businesses. Successfully shaping the generation change . Schäffer-Poeschel Verlag, Stuttgart 2006, ISBN 3-7910-2472-8 .
Web links
Statistical data on the current succession situation
- IfM Bonn: Company transfers / successions
- DIHK: corporate succession
- KfW: 620,000 medium-sized companies are planning handover or sale to successors by 2018
Individual evidence
- ↑ Birgit Felden, Armin Pfannenschwarz: Company succession. Perspectives and instruments for teaching and practice . Munich 2008, p. 25.
- ↑ Hans-Eduard Hauser, Rosemarie Kay: Company successions in Germany 2010 to 2014. Estimation using a further developed method . Bonn 2010, p. 8f.
- ↑ Table taken from: Birgit Felden, Armin Pfannenschwarz: company succession. Perspectives and instruments for teaching and practice . Munich 2008, p. 27.
- ↑ IHK Berlin; Chamber of Crafts Berlin (ed.): The challenge of corporate succession. Information for company handlers and successors . Berlin 2013, p. 6 f.
- ↑ Representation based on: Jenny Amelingmeyer, Günter Amelingmeyer: Knowledge management when changing management in SMEs . In: Jörn-Axel Meyer: Knowledge and information management in small and medium-sized companies . Cologne 2005, p. 483.
- ↑ Succession in Germany | Home page. Retrieved on May 14, 2020 (German).
- ↑ Representation based on: Birgit Felden, Annekatrin Klaus: Corporate Succession . Stuttgart 2003, p. 70.
- ↑ IfM Bonn: Corporate Succession In Germany 2018 to 2022 (2018). Retrieved January 18, 2019 .
- ^ Institute for SME Research Bonn: Corporate Succession in Germany 2014 to 2018
- ^ Institute for SME Research Bonn: Information asymmetries in the family-external succession and their overcoming . Retrieved May 13, 2020 .
- ↑ Petra Moog, Rosemarie Kay, Nadine Schlömer-Laufen, Susanne Schlepphorst: Company successions in Germany - current trends . Bonn 2012, p. 3.
- ↑ uillguth: Survey on corporate succession - German Chamber of Commerce and Industry. Retrieved January 18, 2019 .
- ↑ Welcome to the chair for Entrepreneurship and Family Business! , on wiwi.uni-siegen.de
- ↑ Company foundation and succession , on hwr-berlin.de