We are often asked to resolve succession issues within multi generational family business. In many ways issues that exist with family businesses can also appear within long-established professional firms.
There are often many complicated inter-related issues that causes problems at this critical time in the long-term success of the business or partnership. We have found over the years that these issues can be summarised under one of four areas.
However, the major barrier to the smooth transition of family businesses to the next generation is true open communication. I will discuss the other three areas under future articles.
In many instances there exists the proverbial ‘Pink Elephant' in the room. This is an obvious problem or risk that no one wants to discuss and therefore is ignored.
This may be an issue that has grown up over the years that various family members are aware of but no one is prepared to name. There maybe fear that the naming the elephant will cause a major rift in the family and so the issue is not confronted. There is no straight talking to bring the issue out into the open. However it does not go away, it just festers and grows.
The result is resentment, lack of focus, possibly the creation of warring factions. Sometimes the pink elephant is so large it can ultimately have a destructive impact on the business and could mean talented family members leave or the business has to be sold outside the family or in worst cases the family breaks down – a high price indeed.
It’s not surprising that when we look at the statistics that some 73% of family businesses want to keep the business in the family but only 33% make it to the second generation and only 9% to the third.
Interestingly, studies also show that 57% of family businesses have no defined plan for succession; which perhaps is a direct result of not confronting the pink elephant in the room.
So let’s have a look at some of the reasons that open communication can be an issue specifically within family businesses, but also can be relevant to professional practice.
Fear of expressing feelings and wants.
Perhaps the best way to illustrate this is to look at the succession through the eyes of the next generations. Often their wants and desires are subjugated to the needs of the business and the current leadership generation. They get caught by what they believe is expected rather than what they truly want.
Often feeling uncomfortable discussing their emotional needs and wants as they may feel that it shows their vulnerability and/or disloyalty to the family and so leave it unsaid and just bottle up their frustration.
This can be the result of lack of confidence and manifests in people not talking with each other directly. Factions within the company can result in family members talking with other family members who are not involved directly. A deadly triangle is created and eats away at the core of family relationships.
Perhaps one of the most insidious areas is that of lack of appreciation and recognition. This takes many forms from the incumbent generation to the new generation not recognising their contribution to the growth and success of the business (or indeed vice versa). This is bad enough within the business but has an even deeper impact when it is from external family owners to those family members working hard within the business (or indeed vice versa).
This covers the whole area of assumed responsibilities and expectations. It is just assumed that the succession will go to the next generation without explicitly discussing the implications. Just assuming that all parties are happy with the arrangement or implied arrangements.
Lack of plan
It has been found that some 39% of family businesses expect the founder or MD to leave within the coming years but as already stated 59% of family businesses have no defined plan for succession. This leaves a lot unsaid and assumptions on the date have to be made. The incumbent does not want to formalise the date and so the future leaders are left in limbo, perhaps a little like the Prince of Wales!
These are only some of the issues impacting succession in family businesses. Succession in any business can have a significant impact on the future of the business. For effective long tern sustainability of profits and cashflow, succession should be a process not an event.
So succession and the many issues around the subject can become the pink elephant in the room. Often people can’t see it but they can certainly feel its impact.
Before the business can move forward the pink elephant needs to be named. Once it can be named then all involved can see it and with careful direction can start to deal with it. Often this needs firm but sensitive external professional involvement to truly align the family members to create a family plan as well as a business plan.
To view the next article in the series click here.