Consider for a moment these ‘horror stories’ faced by family businesses:
Senior generation doesn’t want to let go. Representatives are making increasingly erratic and poor decisions. Close family is too respectful to challenge them, but all the while the dangers for the business are mounting.
The next generation is being groomed to take over, but something doesn’t feel right, not least to them, the chosen ones. They seem hesitant, lacking in confidence, and show little of the spark that people saw in their predecessors.
Professional managers, brought in to do the most challenging roles in the business, barely last a few months. They leave, fed up with continually having to look over their shoulder at family members who override their decisions, and interfere in sensitive business relationships.
The next generation of the family are kept waiting in the dark about when their time will come (if at all), which of them will be preferred, and how the succession decision will be made. As a result they spend time and energy scoring points against each other, to prove their fitness to succeed.
The “retired” boss never really departs, but continues to hang around the office, undermining his successor by loose talk with key customers, suppliers, and executives.
The patriarch suddenly passes without leaving any kind of succession plan. The leadership vacuum leaves the next generation fighting out a zero-sum game, where each seeks to advance their separate family interests.
These are familiar stories in the family business world. Actually, many similar dramas are fought out in the non-business world. Too often succession proves to be a disturbing speed-bump in business development. Of all the challenges facing family firms it is probably the most feared and the most mismanaged.
This is unfortunate and unnecessary, for truth too seldom voiced is that succession is a time of opportunity and innovation for firms … but only if it’s handled intelligently.
The horror stories above are taken from my book ‘Family Wars’ with Grant Gordon, where we looked at what went wrong in 24 of the world’s leading family firms. We found many common reasons for succession failure:
* Founders and patriarchs fearing loss from letting go; that inactivity will kill their spirit and take them to an early grave.
* A lack of preparation of the firm and of the individuals involved for the succession process.
• Poor choices and judgement about who should succeed and why.
• A mismanaged handover process — before, during, and after.
• A lack of strategic conception of how succession can refresh, update and transform the business.
• A poor culture where lack of trust and support makes the firm unattractive to non-family executives.
• Weak governance mechanisms don’t support rational decision-making and collaboration across family and non-family
How can these risks be avoided? Here are some key themes:
Vision
Vision is not about dreams of the future but about having a realistic, yet bold, ability to see reality as it is, as well as how it might be. It is the leader’s role to help everyone see what kind of journey the firm is on and how succession can put wind in its sails.
Family Values
Family firms outperform non-family firms because of their cultures. Direct family involvement in the business is a plus, when they are custodians of family business values. This means caring for the senior generation while they are letting go the reins and helping them to find new ways of contributing to the legacy of the firm
Professionalism
This means that everyone has to be professional and think professionally. No one should hold an executive position by right. Family and non-family members have to work together to the same standards.
Family members who are incompetent should be moved aside, and if possible be trained and developed to the best business standards.
Execution
When the time for succession comes, you need the right people in the room to decide who should succeed, when it should happen, how the path can be prepared and how it should be executed. These decisions should not all be left to senior generations, or for it to be assumed that the eldest male will be the automatic choice in succession.
Independent voices and assessments are necessary.
Good Governance
The family needs to speak with a single voice and not work out its conflicts in public arenas. Business executives need space to do their job, but with family interests legitimately represented.
Charters, codes of conduct, shareholder agreements, and value statements can all help, especially as guidelines for how to face such difficult decisions as succession.
Remember, succession is an opportunity for new thinking about strategy, purpose, operations and markets, without throwing away what has made the company great in the first place: character and culture.
The writer is the Professor of Organisational Behaviour at London Business School and author of ‘The ‘I’ of Leadership: Strategies for seeing, being and doing’.
