• Reflections on succession and growth in family businesses

    by  • May 13, 2013 • Readings, strategy

    Atelier B, Geneva, Switzerland

    Growth is tricky in family owned businesses and is quite different from corporate growth. Family and business overlap can be very dangerous, if not managed carefully. Because one is typically emotionally driven and subconscious whereas the other is task based and conscious.

    When a sudden leadership vacuum is created (e.g. by illness or death) and there is no qualified substitute immediately (who can take charge and make independent decisions) available, the family business is in deep crisis. Nothing much can be done at this time, which calls for a viable (and prior) strategy of avoidance, which can be achieved by training a successor from very early on.

    In a family business, there often arises a situation when personal and business matters mingle-up and affect each other. Therefore, family businesses should have clarity on “family-first, then business” or “business-first, then family” kind of priorities. Succession becomes a pain in family businesses especially when personal relations are intense. Then a neutral third party involvement (e.g. consultants) can be an option forward. They can facilitate bridging the communication gap and reach a consensual point.

    Succession is very tricky when there are multiple successors e.g. when the father wants to be relieved from the business and has two sons waiting to take charge of it individually.  One of them had been involved with the company for long but now the other one also wants to enter the business and is more qualified and both want the leadership role.

    Barnes and Hershon (1994) argue that business growth/transition from one stage to the other should happen alongside the succession and the senior who is about to retire has to realize that the company will live on. Essentials for a smooth transition include: training and mentoring of successor, inter-generational teamwork and honesty.

    These are common succession scenarios faced in family businesses. In order to avoid the “succession trap” and embark on a successful growth journey, succession in family business should be planned early. This planning should involve family and colleagues, should take advantage of outside help (whenever required) and should include a sound plan for the founders’ retirement.

    References:

    Barnes, L. B., and S. A. Hershon (1994). “Transferring Power in the Family Business,” Family Business Review, 7 (4), 377-392.