It's the idyllic American dream. Build a successful family-owned and operated business, and hand it off to the future generations so they, too, can live the dream. We all want to leave a legacy. What better way to pass on the lessons of commitment and hard work to your loved ones than to leave them a business with secure employment and the opportunity to generate wealth for themselves and their children?
Sadly, the very institution that should ensure that kind of security and stability is often the very thing that destroys the dream — the family.
Where does one end and the other begin? How do you sort out what you want to do as a family member versus what you should do as a business owner? How do you keep the two most important entities in your life intact? What is more important — family or business? What if the next generation is not interested in following in their parents' footsteps? What if they want to but are not up to the task?
These issues truly come to a head at the time of company transition. When older members of the family business decide to retire or at the least limit their involvement in the business, underlying personal issues can rise to the surface, creating unwillingness in the founder to relinquish control and maneuvering by the heirs to acquire it. Senior members of the leadership team may start to question the commitment and capability of the succeeding members. Differing viewpoints about the future direction of the company cause friction. Long-held grudges about differences in compensation, position and authority can make communication impossible. Family jealousies end up being played out on the shop floor or in the showroom.
There are plenty of advisors who can help you through such a transition. But putting a few things in place before the time comes to hand over the keys might help you avoid having to pay high dollar for a mediator at a later date.
Experts on family businesses seem to concur that when children have grown up in the company, the potential for a positive transition to them is greatly increased. Having kids or younger relatives help out in the evening or on weekends gives them a unique perspective of the real intricacies of the firm and allows them to perhaps see their future there. The key word there is perhaps. Instead of assuming the younger members of the family will want to have a career in the business, allow them to come to their own conclusions. Without a built-in sense of entitlement, they are free to consider other options, test the waters themselves by working elsewhere for a time and truly make a proactive move into the family firm if that is what they want to do.
If relatives do want to work in the business, don't immediately start them at the top. Have them work their way up just as anyone else would. This not only gives them a better understanding of what actually makes the company work, but it also buys them credibility with other employees who will come to realize that the family member is earning a spot in the company's future just as they are.
To ensure a consistent and objective perspective for the company at all times, but particularly at a time of transition, create an advisory board of outsiders, which might include attorneys, accountants, bankers or other partners. Their guidance can be invaluable when addressing succession planning, personnel issues and strategic vision.
Implement basic and standard human resource practices, such as clear job descriptions, an organizational chart to show reporting responsibilities and routine employee performance evaluations.
Encourage family members to take time to work outside the business or get further education before making a permanent commitment to the family-owned company. If they do return for a job in the family business, they will come back full of fresh ideas, best practices and new ways of doing things that can only benefit the operation.
Make a plan for the transition. The founder or current leader in the business should articulate a clear personal direction for his life after leaving the company. This will help clarify what the business direction should be and will encourage him to act as a good teacher or mentor for the next leader. The plan should include careful consideration of how he will use his time after leaving the company. Will he travel? Play golf? Write a novel? Entrepreneurs who have devoted their entire lives to a company rarely have outside interests; they have not had time to develop them. The exiting leader must have a plan for his life beyond the business.
Most importantly, ensure the founder is prepared to make the transition — financially, emotionally and professionally. Discourage any indication from the founder that he intends to die at his desk or behind the counter. That is a sure recipe for chaos and ultimate failure upon his passing. And to the extent possible, the senior owner should not be reliant on the company for retirement income. That's one sure way to guarantee that he will not be able to let go of his previous responsibilities.
On the other hand, it's not wise to completely exclude the previous owner from the company. In doing so, you will lose a great deal of institutional knowledge, expertise and connections. You want to ensure that you can still reach out to the senior family member at certain times to serve as an advisor or to introduce current leadership to important partners and networks.
The key to successful transitions is planning for them. Talk. Explore the options. Don't assume ... and put a plan in place. Having to make decisions in a hurry with little forethought is a sure-fire way to create irreparable emotional scars within a family, endanger the company's future and turn the dream of family business into a nightmare.
This story was featured in the May 2012 newsletter