Proud father and business owner
Dear Corporate Shrink,
My son is 23 and just graduated college with a degree in finance. I would like for him to take over the family business in 5 to 10 years. What are some suggestions for making this happen?
Dear Proud father and business owner,
A vast majority of the world’s companies and over half of all publicly owned companies are family controlled. Half of our gross domestic product is generated by family businesses. Families are the backbone of the business world. Running through this large segment of society is the pride of founders like you and the dream of a legacy to be passed from generation to generation. However, only one in eight family businesses survives into the third generation. Succession is a tricky business.
I like to explore seven major questions when a client presents me with this type of situation.
1.
Dear Proud father and business owner,
What is your son’s true passion? - What does he want? Ideally, he has grown in a family environment where his career choices and his potential future in the family business have been comfortably discussed. He needs to have a fairly accurate understanding of the opportunities and satisfactions as well as the potential negatives in getting involved in the family enterprise. He must know about the hard work and the worries as well as the joys and the rewards.
His college experience hopefully exposed him to other potential life paths and he availed himself there of input from advisors and professors. He needs to weigh the choices that life is putting in front of him.
Realize that the next several years can have many twists and turns. He may change his mind and follow his true bliss elsewhere. You have to allow him that freedom but in return he must keep you apprised of his intentions in case contingency plans for company leadership need to be formulated.
2.
Dear Proud father and business owner,
What are your own plans? - Five to ten years can go by fast. Are you in touch with your own bliss? Will you be ready to let go of the business? Will you feel satisfied with your legacy? Will you be content in the role of consultant? Would you be looking to re-invent yourself and follow new pursuits that would take you away from the business?
Most family businesses that fail to make it to the second generation and beyond involve situations where the founder declared his intention to allow the next generation to assume control of the reins but in actuality designed the power structure, through the ownership of stock, to remain in his hands. What will be your reaction to his enthusiastic recommendations to change some of the ways your business has been run? Are you ready to gradually reduce majority control of the company over the next 10 years?
We also have to consider your life stage. Fathers in their early to mid-forties are often too preoccupied with their own mid-life transition to effectively prepare their sons for the business. They also are at the top of their game and strongly feel they know best. On the other hand, kids up to their early twenties are still struggling with separation and independence issues. Many gain their sense of self-confidence by behaving as if they know best. These two mind sets can clash.
A more workable situation involves fathers in their fifties who are developing a need to mentor others. They seem to do better with sons in their late twenties who have established a firmer identity and are more receptive to dad’s advice. These factors may affect how you structure the succession timeline.
3.
Dear Proud father and business owner,
Are there family dynamics that can interfere with succession planning? - Of course, having your son become a part of the business you created would give you great pride and joy. However, be aware that his entry into the family business, especially as your anointed successor, can create family tensions as well. Are there siblings that will feel overlooked? What about current or future in-laws? Do you have your wife’s support?
It falls on you to assess these potential problems and successfully intervene so the business is not negatively affected. Of course, you can use the help of your advisors and consultants to navigate through these stressful undercurrents.
4.
Dear Proud father and business owner,
Does your son have the skills and aptitude required for the type of business you run? - You need to objectively evaluate your son’s skills, competencies, work ethic, and leadership skills. An objective assessment by an outside consultant can help determine areas that need improvement and plan the experience and learning required for his ascent to the top.
5.
Dear Proud father and business owner,
Does he need exposure to the outside business world? - It is good to have in place a policy regulating the entry of young family members into the family business. I personally support the approach that has the owner’s children work outside of the family business for two to five years. They get exposed to other companies’ business methods; technological procedures; and, management techniques. They can import all this knowledge when they join the family business.
Working on the outside allows potential successors to get objective performance feedback; develop an appreciation for the work ethic; and, establish their professional credibility. The passing of these years will also place the two of you into the more favorable, collaborative life development stages discussed in question two.
It is important that you consider exposing your son to the outside business world. If he makes it, he will be heading into your business with a tail wind of confidence. It will reassure you, as well as others, that he deserves the opportunity you are giving him and that it’s not blind nepotism. If he doesn’t succeed, it can teach him and you a valuable lesson. He may realize this is not his life path; he may decide to get more education, training, and experience; or he can have the option of joining your company with the understanding that his assets and skills may best serve you all in a more limited managerial capacity.
6.
Dear Proud father and business owner,
How will you deal with key non-family employees? - When a family member is undeservedly given decision making powers, it can create serious business problems. Non-family employees who can effectively manage and lead the business will leave when faced with situations where the family name alone will get you ahead. Morale will drop and recruitment of good managers will be impossible. Of course, having ineffective family members at the helm can spell disaster for the business. The solution is to have clearly spelled out, objective criteria required of everyone being considered for management positions.
You may have a valuable, key individual on your management team who aspires to replace you as CEO upon your retirement. You must deal openly with him. If he has the qualifications, the time line for your son’s ascendancy to your position can include a period during which this individual assumes the CEO role, with your son training under him. When your son is ready, this individual can use his experience and knowledge of the company to serve the strategic role of the President. You can consider offering a share of the business ownership contingent on his staying. You yourself can move into the role of Chairman. Of course, this is a happy ending scenario dependent on the right business conditions as well as hard work and honesty on everyone’s part. When in doubt, ask yourself what needs to be done to ensure the continuity of the business.
7.
Dear Proud father and business owner,
Do you have a structured succession plan? - You need a comprehensive, formal, step-by-step process for developing your son’s managerial and leadership skills. The objective is to instill in your son knowledge about your industry and specifically your company; a maturity required for managing others; a vision for the future; and, a sense of stewardship over the family business dream and legacy. It requires everyone’s understanding and agreement over the specific jobs and competencies that he must master before moving on to the next stage.
Your son will require mentoring that is tailored to his individual needs. A decision must be made as to who does the mentoring. I believe this is not a one person job. You want your son to rotate across various departments receiving mentoring from the senior members in charge. Ideally, he would be a team member of cross functional groups tackling important business issues. This will help him develop an integrated overall sense of the company.
How you define and present the mentoring process to others in the company is critical in gaining their support. Your expectations of the mentors need to be clear. They also need to feel supported by you when your son is held to performance standards. If done correctly, you can assemble a cadre of mentors who will be proud to be involved in your son’s growth.
Succession planning is complex and emotional. It is a process required to ensure the continued viability of a family business. Seek the advice and support of trusted colleagues, employees, family members, and consultants.