We have all seen the images of the Olympic athletes performing at the 4×400 meters relay at the games in Paris struggling with the handover of their baton in the final meters of their leg. Although slightly different this is how a leader of a Family or Founder Controlled Business might feel about the handover over of his business to the next generation. The tension before the big handover, the essence of timing, the meticulous preparation, but also the potential disappointment of dropping the baton in the full limelight with the finish in sight.
Having the weight of the future of the family on your shoulders requires you to make sure you prepare and, to the extent possible, practice this handover. As the adage goes, “A family business is not a business you inherit from your parents, it is a business you borrow from your children.”
In this article we want share our views on succession planning for family and founder-controlled businesses. With baby boomers coming to the age of retirement (or being well past it) the world is facing the largest transfer of wealth from the baby boomers to the next generations. If that transfer includes the control of a company, there is a lot to consider.
It is important for families to start by examining their relationships. In a family context, there are for example no clear boundaries between professional and personal relationships. The Family Business Handbook[1] by Harvard Business Review identifies three distinct types of relations which are simultaneously at play.
- Family Relationships: this type of relationship trades in emotions both love and negative emotions. Family relationships are the longest relationship in one’s life. They can be identified through the following key words Inclusion, Forgiving, Protecting, Supportively Challenging
- Business Relationships: a set of hierarchical relationships with a clear reporting structure. The relationship makes sense for as long as it is mutually beneficial for both parties. Can be identified as meritocracy[2].
- Owner Relationship: Control through voting rights. Owners are part of a small group with a clear distinction (you are either an owner or not). Changes in ownership are not simple, the sale of shares is only possible to a limited number of buyers (family members in most cases).
Most decisions you are making will be along the lines of these three relationship dimensions. There is a not a clear level playing field as these three types are inherently conflicted in numerous cases
Preparation
Many people who are born into a family that runs a business are hearing about the company daily. It will be a regular discussion topic over diner, a reason why mum or dad are travelling or working late and sometimes a source of stressful moments in the household when the business’ performance is not going as planned.
This, and many other reasons, can be drivers for the younger generation to either fully embrace the business or prefer to stay away from it. Making this decision at an early stage is sensible but it also puts pressure on the older generation family members to continue to remain focused on changes in ideas and expectations about the role of the next generation. Having junior family members who get overlooked can have an impact on decision making and can impact the way the business develops.
To keep abreast of the dynamics within the family it is important to create a dedicated forum to discuss these issues without judgement. It is important that the family decides about the type of leader they want to elect out of their midst and when this selection process has been concluded the family should give the new leader the opportunity to make his or her mark.
Identification
In previous generations the succession issue was solved by the anointment by either the patriarch or matriarch without clear assessment of the required skills and grit to take the business to the next level. With this came the issue that the handover was not really a handover. The older generation kept an office and a parking spot, subconsciously making clear who was still in charge.
In the current era we think that working with a strategic HR advisor who also has a thorough understanding of family dynamics, is the bare minimum to identify the new leader for your business from the family-pool.
Entry
When you are planning to engage family members in the business make sure to have a clearly defined process in place. It is important to set out a pathway for the elected family members to join the business and make sure this is clear and accepted throughout the organisation.
- The intended successor may have forged a career and gained experience outside of the company (without being influenced by the family name) or he or she has started in the business from day Either way, careful introduction as the new head of the business is imperative to be accepted by all the stakeholders. A formal process will aid acceptance and pave the way for a smooth transition.
At Leyster our core expertise is financing the generational transition and/or the growth ambitions of the family or founder-controlled business. To do this in the right way we also coach and support the generations impacted by the handover to get everybody over the finish line. For the generation handing over the business, to do so in a timely, well planned and careful manner, allows them to step back with confidence and trust that the next generation will be perfectly equipped for the next leg. For the generation taking the lead, to feel that they are fit for the job, have the baton firmly in hand and can start running to their handover moment.
[1] Harvard Business Review Family Business Handbook: How to Build and Sustain a Successful, Enduring Enterprise, January 2021, by Josh Baron and Rob Lachenauer
[2] Meritocracy: holding of power by people selected according to merit
