[Abstract]
Management succession has emerged as the key issue among SMEs with the rapid aging of the SME owners. As more and more SME owners reach their sixties, they are keen on formulating a management succession plan so that their children may take over the family business smoothly.
A smooth inheritance is not as easy as it sounds due to several stumbling blocks such as heavy inheritance and gift taxes and a lack of strategies and preparation regarding management succession. The IBK Economic Research Institute has recently found that excessive inheritance and gift taxes, lack of confidence in the heir¡¯s management capability, complicated administrative procedures, and the absence of a well-organized grooming program for the next generation are the major reasons that are making smooth takeovers difficult.
Failure in selecting a successor at the right time undermines the company¡¯s competitiveness, making it impossible to survive through to the next generation. The average life span of Korean SMEs, in particular, is only about 10.6 years; with only 12.6% of Korean SMEs surviving more than 20 years. This is a stark contrast to global family businesses that boast long life spans.
The national economy also has a lot to lose if an SME vanishes due to an unsuccessful management succession plan as valuable intangible assets of the company such as the accumulated know-how and expertise as well as jobs and production facilities will also be lost with the demise of the company.
Understanding the smooth succession of family-owned businesses is important for the stabilization of the national economy, job security, and the company¡¯s competitiveness. The advanced economies are making dramatic changes in policies on the inheritance tax system and the grooming of successors. However, the Korean government has yet to hammer out special measures to support the management succession of SMEs due largely to the negative public sentiment toward the inheritance of wealth. The difference between Korea and the advanced economies may be in part due to Korea¡¯s relatively short history of industrialization.
Given the large role SMEs play both socially and economically, we need to take a more positive attitude toward management succession.
The importance of the successful management succession, as a first step toward building a long-lasting company, cannot be underestimated. We need to recognize how crucial the successful management succession is to ensure the sustained growth of SMES and the national economy.
Management succession has the potential to make or break a company. Of course it is very important to boost the entrepreneurial spirit, but it is equally important if not more important to find the right heir to pass along the business.
The key to the thriving management succession is to make thorough preparations and minimize errors. An owner of a family business needs to understand the importance of a well-organized succession plan and take enough time to formulate one. Successful management succession planning cannot be established overnight; rather, they require several years of hard work and planning.
Systematic management of the risk factors in the succession process is also necessary. The company¡¯s management could be disrupted during the succession process without an internal/external control system in place. The company may suffer a downgraded credit rating at financial institutions, losing customers. A family dispute over inheritance cannot be ruled out. Children of the owners may also decline to inherit the family business.
A step-by-step grooming program for the next generation should be put into place. Grooming a capable heir to the family business takes a long time. Therefore, a company needs to develop various preparation programs to prepare for successful management succession.
Passing down management know-how to the next generation is especially important. The heir should be given enough opportuni