In Mexico, 90% of the companies are family businesses and generate over 70% of total formal employment in the economy. Despite its importance in the value of production volume, family businesses face a difficult macroeconomic and political environment due to weak laws and heavy taxes. In addition to this, family businesses face internal problems that affect their operation, such as lack of professionalism in their business, emotional conflicts, little succession planning and ineffective communication between members. As a result, family business in Mexico going from one generation to another has a success rate of only 35%. The survival of family business generally depends on executing effective and efficient actions as part of an overall strategic plan.
My experience in advising family businesses in Mexico is that working with a multidisciplinary team of tax, legal, financial and strategy specialists is crucial to ensure a seamless succession process. Maintaining the economic power together is fundamental to the long life of the family business: Separating the company to avoid problems and discussions within the family, not only contributes to weakening the corporate structure but duplicates costs and expenses, ultimately increasing the chance of the business failing significantly.
The key to achieving a successful process is to establish clear rules at the outset for all the family members. Such rules must consider fundamental aspects in key areas of the company, such as the stock-holders relationship, cash distribution, corporate governance and executive decisions. Amongst other things the plan should also cover, succession, compensation schemes, legal structures, adopted protocol, organisational design, business plans and strategic plans.
This implementation of well-communicated rules must be reviewed periodically and systematically, in order to ensure that the family and the company are seamlessly working together on relevant aspects of the business. This will ensure the proper operation of corporate governance with well defined responsibilities and activities; a suitable internal communication structure; the effective transmission of family values in the company; the definition of a strategic business plan; the development for business administration team; the preparation of career plans for family members consistent with individual expectations; and acknowledgement of the new generation’s strengths and weaknesses.
In a survey conducted by PwC and the Centre for Family Business Research at the Universidad de las Americas de Puebla last year, one of the most significant findings was that over 88% of the companies not have a succession plan, and 75% have not even thought about the person who will run the company. This relevant indicator shows that family businesses in Mexico have a long way to go, to find permanence for generations to come.