Family Owned Business

Family Business Succession Planning II

Our law firm turned 100 this year. They say that roughly a third of family businesses make it from the founder to the second generation, a third of those make it to the third generation, and precious few make it to a fourth. 

How do the few survivors pull it off? First of all, it takes wisdom (and much patience) to run a business in the face of complex family relationships. When it comes time to hand the reins to children, real challenges arise.

Let’s think about the perspectives of parent/manager. The parent at some point wants to slow down and perhaps cash out and retire. 

He/she is saddled, both with the pride of having built a successful operation, as well as the fear of having a child run things into the ground. 

These, indeed, can both be burdens that impair dispassionate assessment of what needs to be done. 

A company should be run to achieve the greatest financial return for its owners – period! 

It is very hard for a parent – often pressed by a nurturing spouse – to think objectively about a child employee, and yet that is exactly what needs to be done. 

Thus, it may not be best for management control to pass to a child based on age or sex alone. (Indeed, sometimes it may be better for children to stay in operations and let a nonfamily member drive the boat.)

A child employee’s point of view is different. As the boss mother/father gets older, it is natural that the parent’s energy levels wane, creativity wanders and willingness to try new things melts away.

It is natural, too, that youth notices this.  Youth is impatient. Youth has all the answers. Youth does not want the old man to run things into the ground, either.

And, yes, youth typically must support a growing family with all its financial pressures. However, youth does not know what it does not know….

Thus, inevitably there is growing tension as a business moves through time and its management ages.

The founder’s generation may have been entrepreneurial, patriarchal, and hierarchical, while decision making in second- generation companies often needs to move toward a decentralized and professional management style.

How can you bridge the competing perspectives?

Shared values and beliefs lessen family jealousies, conflicts and sibling rivalries and help ease generational transitions.

The world is complex beyond understanding and when we come into it, we must adopt narratives that allow us to cope with the chaos.

The philosopher Jordan Peterson, in his college course “Maps of Meaning,” contrasts successful narratives, such as those found in great literature, in religions that have lasted for millennia, or in the philosophy of the local Rotary Club, with the thin intellectual soup offered up by the popular media. 

A narrative taken from the latter that is self-absorbed and not community – and employee-focused is not one that sustains a business through the generations.

Work at being a family. Work at being part of a community. Successful family businesses stress mantras such as reliability, responsibility, conscientiousness and honesty.

Good family and cultural values only take a family business so far.  “Someday all this will be yours (subtext: “So keep busting your ass for no money and quit whining!”) with nothing in writing does not work.  Vague = frustration = kid jumping ship.

Family businesses should have strategic plans that reflect a firm’s vision, values, markets, growth
opportunities and transition process

If children are eventually to be brought into management, let there be a written timeline that will assure they will have acquired the training and experience in time to take over. 

Skills should be assessed, talent identified and incentivized. The best way to evaluate skills is to pretend children are not relatives. An outside consultant may be useful for this. 

Owners hate to give up control. Yet if the goal is to someday sit on a beach in Florida, at some point the process must begin.

The challenge is to time the transition so that children are trained, experienced, incentivized and informed about timelines

Family businesses have advantages in that “owners,” as opposed to “operators,” are more likely to be good stewards of assets and beneficial values, and, thus, be long-term thinkers – all of which give reaching a fourth generation better odds.

Legal Strategies is sponsored content produced by Johnson & Johnson Law Firm in Canfield.

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