Unprepared Succession, A Predictable Crisis

Founders build companies. But a founder who has not designed how to leave behind leaves the company with the greatest uncertainty after departing. In June last year, the founder of Cheongho Nais, a water purifier and air purifier company with a history of more than 30 years, died suddenly. According to reports, systematic plans for succession, gifting, and management training had not been sufficiently prepared. What remained was the company. And an inheritance tax burden estimated in the hundreds of billions of won.

As the enormous inheritance tax burden overlapped with governance uncertainty, the bereaved family appears to have come to consider the option of selling their stake. Subsequently, reports followed that after negotiations with U.S. private equity firm the Carlyle Group at a level of 800 billion to 1 trillion won, a contract to acquire 100% of the stake worth approximately 1 trillion won was signed. The process of selling the company the founder had built over more than 30 years to outside capital began in earnest. A dispute also arose. A person claiming to be the child of the founder's former wife filed a lawsuit over inheritance-related rights.

Crises do not come suddenly. They grow in places where no preparation has been made. This is not a story unique to Cheongho Nais. Hanjin Group had a succession structure in place after Chairman Cho Yang-ho's death, but as family agreement and governance stability were not sufficiently secured, it was drawn into a management control dispute. Ourhome, too, ended in an external sale after conflict among four siblings continued for nearly 10 years. The circumstances differed for each company. But the common point was clear: succession remained an implicit expectation within the family and was not sufficiently organized in the form of systems, documents, and agreements.

Succession is not a matter of the afterlife. Succession is a matter of now. The numbers point in the same direction. According to figures repeatedly cited in family business research, the proportion of family businesses that continue to a second generation is around 30%, and companies that persist beyond the third generation are far fewer. The foundation for long-lasting companies is also weak. Japan is known to have tens of thousands of companies that have survived for more than 100 years, but in Korea that foundation is still thin. According to a 2023 survey by the Korea Federation of SMEs, more than a third of small and medium-sized manufacturing company heads are already over 60. Within the next 10 years, countless companies will reach the inflection point of succession, but companies that have established concrete succession plans still number fewer than half.

Why do they not prepare? The reasons are structural. Founders are reluctant to have conversations that acknowledge their own finiteness. Children fear being called unfilial if they bring up the subject first. Executives hold their tongues before the owner's authority. Tax and legal advisers offer technical solutions but cannot enter into the essence of family relationships. Silence becomes a structural practice for the entire family. When that silence accumulates, the company is not protected but disposed of.

Professor Raphael Amit of the Wharton School at the University of Pennsylvania is an authority on family business governance research. The starting point of the solution he offers is simple: create a Family Charter. It must define who can participate in management and when, on what principles ownership stakes will be transferred, and how final decisions will be made when opinions diverge. The point is to design succession not as a simple transfer of management control, but as a strategic transition process across three axes: ownership, management, and control. Professor Amit emphasizes this: succession preparation is only possible while the founder is healthy. After cognitive ability has declined, legal procedures rather than family agreement may stand at the center of decision-making. The window for preparation is narrower than one thinks.

Designing succession is not about preparing for death. It is about protecting the company while alive. For a founder, retirement is not a loss of social status but the beginning of a new chapter. Preparing for life outside the company and designing succession start from the same root. Only a prepared founder protects both the company and himself. Founders build companies. But only a founder who has prepared even the manner of departure leaves what he has built fully intact.