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Insights
Family Business Succession and the Constitution
- Family owned business survive for generations if they tame three aspects: Strong family culture transferred from “father to son”; Planning the succession as a well-designed process; and realizing that the succession, internal or external is part science and part art, without the art the science alone is not enough
- Family businesses deal with business challenges like any other business but the family issues are superimposed on the business and market matters. At times the business has the upper hand and at times it is the family with the advantage.
- The older generation finds it difficult to let go, usually they are explanations and excuses of why it is not time yet. In reality the deeper reasons are:-
- Fear of losing relevance
- Mistrust in the new generation
- Not letting go from the “way it was”
- The current top guy “knows it all” he I powerful and always ran the show
- Times change and it is difficult to let go, there is nothing else to do
- New ways of doing things does not align with the old days.
- The transition requires clarity about the future for the old generation and the future generation; what is one willing to do to achieve that; involve the family do not act as a lone wolf
- Family owned businesses – of any size – differ from other businesses in many ways, a key difference is that the values and habits, the culture, of that family tend to influence the business as a whole. It is reflected in the company’s mission, vision guiding principles, employment terms, morale, community relations, and ethics. Hence understanding and protecting it gives an important advantage.
- Families live under many different cultures that are reflected in their respective businesses: Paternalistic; Autocratic; Controlling; Laissez-Faire; Professional; Highly formal, etc.
- For many heirs, taking over the family business adds a layer of emotional and management challenges that in other circumstances are not encountered. Many manage via trial and error since they were not led into the new role in a structured fashion. Shoring the same last name does not buy authority or trust be that internal or external.
- Some critical matters are summarized by many authors as follows: Assess and understand the family dynamics; not all family members have the same level of involvement or interest in the business; set clear roles that protect the assets and integrity of the family (constitution); Follow your instincts, your heart; keep your ego or “last name pride” out of the equation; use healthy judgment to remove all toxic staff, family or not; introduce measurements-KPIs; hire trustworthy consultants; develop a clear governance model; be financially and fiscally clear and responsible; show flexibility with the direction of the business; prepare the next generation or leadership, internal or external; professionalize the management.
- There are no “one size fit all” approach. Families generally protect their wealth and the assists that lead to building the wealth. However, moving from G1 to G2 is quite different than moving from G(n) to G(n+1) after generation 2. In an effort to provide clarity of guidelines families develop their own Family Constitution (sometimes called protocol).
- There re some key points families need to consider during a transition: Is any one interested? Is the interested party the right one?; Is the person well prepared?; Is there clarity in the “lanes to follow”?; The exiting generation has to have a gradual exit plan with a slow down alternative if need be; do not lose critical knowledge and relationships; Make sure you have outside guidance.
- To build an enterprise the family business has to have solid foundations, clarity of purpose, strong leadership, and a clear plan of protecting the family culture and developing solid bond between consecutive generations.
George Kastner
12-2020
