Succession in Family Businesses

It can be said that every family business owner will want to see their business continue with the family for many generations. A sense of emotional attachment and bonding of families and involvement in their business from an early age should lead to continuation of the legacy into the future.

One of the most significant problems facing family-owned businesses is the ability to ensure competent family leadership across the generations. It is noted that approximately only one third of family businesses survive into the second generation. Poor successions are often the source of the problem. An additional problem is the inadequate attention to emotional factors that affect members. Some of the stumbling blocks for continuity of family businesses are noted below:

1: Lack of planning and recognition
The founder wants his children to work as hard as he did in establishing the business, without recognizing the lack of apprenticeship. The transition is not planned nor executed in a way to ease the entry of second generation into the business. When this happens the second generation takes on the business as if it’s their right and don’t recognize and appreciate the effort put by the founder. This leads to a lack of emotional attachment to the family and the business suffers as a consequence.

The younger generation embarks on new businesses taking higher risks looking to be recognized by their parents for their accomplishments and uniqueness. Such lack of feeling and appreciation underlies many of the problems in family-owned businesses.

2. Name recognition
Similar to the issues in lack of planning, the founders and senior generation members of family owned businesses think they are entitled to everything because their name is on the wall. They think they know what’s best for business and want to drive strategy. This is often at the expense of their younger generation adult children, who are waiting for an opportunity to lead the company.

On the other hand, the younger generation use their name as a right to achieve advantage over other people in the organization. They want entitlements because their family runs the business. When this occurs, it has a negative effect on morale of the employees in the family business and good people leave the business.

3: Control and lack of diversity
Control was the basis on which the founder of the family business operated and succeeded. But when it comes to succession, handing over control becomes the main issue. The founder obviously remains in the company until he’s sure the reigns are in good hands. But also will interfere in every aspect due to the need for recognition of his status. This becomes an obstacle in many instances. The need to have lesser age gaps in members inducted into the business will give the required diversity to the business.

4: Communication
It’s can be generally noted, family members involved in the business often do not talk directly to other family members who are involved with the business. They talk to other members a gripe about things. If this happens during succession planning, it creates factions and cooperation between members will reduce causing the business to decline.

A planned way to avoid such issues is to have a family governance code that addresses potential obstacles to succession. The code should require all successors to be trained and ensure that they have proper skills in place before they take over from the predecessor to ensure continuity of the business. A good communication channel should be put in place to aid flow of information to avoid conflict. This is a proactive way to enhance a family business’ opportunity for continued success and prosperity.

About surenraj

“Views expressed are my own”
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