Succession in a family-owned SME: the board you are underestimating

The founder is 62, his daughter has worked in the company for eight years, and nobody has ever spoken aloud about what comes next. The scene is a common one in Belgian family-owned SMEs. Succession remains an intimate subject, pushed back from one meeting to the next, until an event forces the timetable: an illness, a dispute between heirs, an unexpected takeover offer.

The board of directors is the most effective tool for escaping this grey zone, on one condition: that it is more than a formality.

Why the board so often remains an empty shell

In many family-owned SMEs, the board consists of the founder, his or her spouse, sometimes a child and the trusted accountant. It meets once a year to approve the accounts. The important decisions are taken elsewhere: at the kitchen table, in the chief executive's office, over the phone.

There is nothing shameful about this. It has even served the company well for years, because a founder's speed of decision-making is an asset. But it becomes a handicap at the point of succession, for three reasons:

• sensitive subjects have no legitimate place in which to be raised;
• decisions rest on a single person, which leaves the company vulnerable;
• family and business become entangled, and every professional disagreement turns into a personal conflict.

The Code of Companies and Associations, in force since 2019, leaves considerable freedom in the articles of association, notably for the SRL (private limited company). That freedom allows you to build a governance body suited to your situation. Few business owners make use of it.

What an active board changes in practice

It separates family, ownership and business

Three distinct questions get mixed together in a family-owned SME. Who owns? Who manages? Who is a member of the family? A child can be a shareholder without being the right person to run the company. A talented executive can run it without ever holding shares.

An active board forces these distinctions to be made. It discusses strategy and oversight of management. Family questions, such as equality between heirs or the place of sons-in-law and daughters-in-law, are dealt with in another forum, for example a family council or a family charter. This separation prevents the board from becoming a place for settling scores.

It brings objectivity to the choice of successor

Choosing a successor from within the family is a legitimate decision. But it is often made on emotional grounds: the eldest, the one who is 'in the business', the one who will take over because everyone hopes he or she will. A board that also includes outside members can ask what the owner-manager dares not ask. Which skills will be needed in five years? Which does the candidate have? What is missing, and how can the gap be closed?

The board can also validate a development path: experience outside the family business, training, a period of mentoring, growing responsibilities with clear objectives. This protects the successor as much as the company, because his or her legitimacy with the teams then rests on facts.

It gives succession a timetable

A succession without a date does not happen. The board can set milestones: when the owner-manager hands over operational management, when he or she steps down as chair, when the shares change hands. It can track these milestones at every meeting, like any other strategic project.

It brings an outside perspective

An independent director has no history with the family. He or she can tell a founder that his son is not yet ready, or tell a son that his father must let go. These messages land better when they come from someone with no emotional stake. In Belgium, bodies such as Guberna and the Institut des Administrateurs offer training and reference frameworks for directors, including those of unlisted companies.

The workstreams the board must steer before succession

The profile of tomorrow's chief executive

Before talking about people, talk about the role. What kind of company do you want in ten years? What size, which markets, what organisation? Only then should you compare the profile of the likely successor with that need. If the gap is large, two options exist: support the successor, or temporarily entrust management to an external profile.

The shareholders' agreement and exit rules

The most fragile moment for a family-owned SME is when the shares are spread among several heirs who do not share the same expectations. A shareholders' agreement, negotiated before tension appears, sets the rules: pre-emption rights, exit conditions, dividend policy, the role of each party. The board does not draft the agreement, which is the lawyers' job, but it makes sure the subject is dealt with in good time.

Tax and financing

In Belgium, gift and inheritance taxes fall under the Regions, and the regimes applicable to family businesses differ depending on the Region where you are domiciled or where the company is established. Financing the purchase of shares, valuation, the outgoing owner-manager's future and his or her income after the handover are very concrete questions. The board is not there to replace the notary, the tax adviser or the statutory auditor. It ensures that these experts are involved early and that their recommendations are debated before they are implemented.

The transition period

Succession is not a single day, it is a period. During it, the outgoing owner-manager and the successor must share power without getting in each other's way. The board can formalise this arrangement: who decides what, how a disagreement is resolved, when the founder steps back from a given matter. In some cases, an external interim manager secures this phase by ensuring operational continuity while the successor builds up to full responsibility.

A common scenario

Take a composite but very widespread case: an industrial company in Wallonia or Flanders, run for thirty years by its founder. Two of his children work there, one in production, the other in finance. The father hesitates between them, does not decide, and lets each believe he or she will be the next chief executive. Tensions rise, and managers begin to take sides.

An active board, with two outside directors, changes the dynamic. It first asks for a description of the managing director's role five years from now. It runs development interviews with both children. It proposes that one takes over management while the other sits on the board with a clear role, and it sets a date. The decision remains a family one, but it becomes reasoned, and therefore acceptable to those it disappoints.

How to build a useful board

A few simple principles are enough to get started:

• Aim for between three and five members. Beyond that, debate becomes diluted; below it, the outside perspective is missing.
• Include at least one independent director, with no family or financial ties to the company. A business leader who has already been through a succession is preferable to a generalist.
• Look for complementary skills: finance, legal, sector knowledge, human resources.
• Define the length of terms and, if you wish, an age limit. This prevents the board from becoming a closed club.
• Pay independent directors properly. An unpaid director does not take the responsibility seriously, and nor will you.

Mistakes to avoid

The first is to appoint directors who will never say no: the childhood friend, the brother-in-law, the long-standing accountant. The second is to let the founder chair the board alone, with no counterweight, at the very moment when he or she needs to learn to step back. The third is to believe that the board decides in place of the family. It does not: it creates the conditions for a considered decision, it does not impose one.

Where to start

This week, reread your articles of association and the latest minutes of your board meeting. Ask yourself one honest question: if you were absent for six months, who would decide, and on what basis? Then put a single item on the agenda of your next meeting: succession, with three sub-questions. What date are you aiming for to step down from management? What are the criteria for choosing your successor? Which outside director could you invite within the next three months? This single item, discussed and minuted, is enough to move your board from a formality to a steering tool.