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Offspring going into the family business
Adding the next generation to your business can be the best or worst thing to happen.
After decades when parents were finding it difficult to entice children to take over family businesses, recent years have seen a change. Today, more sons and daughters are asking to join and run their family enterprises.
In recent years, many children have seen first-up close your challenges and hours dedicated to growing the business and have said, ‘No, thank you’! But with the job market fluctuating for various reasons, more of the next generation is thinking that going into the family business might be best for them.
Pitfalls must be considered and dealt with regardless of the motivations that impelled the change.
But is it right for the business?
The blending of personal relationships and family history can impact future business operations. If not managed correctly, past family issues can result in misunderstandings and resentment among family members and other employees. Identifying and addressing these challenges early can help pave the way for a more seamless leadership transition.
There are various pros and cons to bringing on the next generation.
Pros:
- Keeping the business in the family, preserving, protecting, and/or passing on wealth.
- The next generation may have learned about the business over a couple of decades through overheard conversations and/or perhaps summer/holiday/part-time employment.
Cons:
- Employees may fear nepotism.
- Family members not involved in the business may not be happy.
- The next generation may expect favoritism.
The goal should be to create a succession plan that works for the next generation and, hopefully, for future generations. Here are some factors to consider:
Getting the help of an experienced business law attorney is essential for the longevity and stability of the family-owned business. Key elements include understanding the dynamics of family relationships, defining governance structures, and implementing strategies for a smooth leadership transition.
Understand succession in a family-owned business often involves more than transferring ownership. It includes preparing the next generation for leadership roles (through mentorship programs, formal training, and individual development plans) and managing the next generation’s expectations.
Family dynamics can complicate succession, so open communication is critical. Establishing clear expectations early and addressing potential conflicts can reduce friction. Documenting the succession plan allows all family members to understand their roles and promotes transparency.
Governance structures guide decision-making and enhance accountability in your family business. Updated by-laws and/or operating agreements may help mitigate conflicts by establishing rules for governance and succession. Regular family business meetings can support better communication and can foster cooperation. Further, the company should implement a board of directors composed of family and non-family members to provide diverse perspectives. This structure can support strategic planning and enhance your business’s viability and resilience.
Medical and emotional dynamics, as well as history and baggage, need to be navigated. Key focus areas include family relationships and the interplay between personal aspirations and business objectives. Similarly, medical issues and/or chemical dependencies should be addressed in succession plans.
Family relationships and business roles can complicate succession planning. Relationships often influence decision-making and perceptions of fairness. Clarifying roles within the business and establishing communication protocols are essential. Regular family business meetings and a process for conflict resolution are important. Agreeing on a structured approach helps manage disagreements; consider involving neutral third parties to provide an unbiased perspective during conflicts.
Harmonize personal and professional goals, if/when possible. Family members may have unique visions for their future, which can clash with the business’s direction. Understanding these individual goals facilitates better planning, encourages alignment, and helps set realistic goals that satisfy personal and professional requirements.
Developing a shared vision for the business can unify perspectives. Documenting this vision provides a reference point for future decisions. This approach fosters commitment to the business while respecting individual desires.
Generational differences can lead to misunderstandings and misaligned expectations. Communicate across generations and address challenges to create a smoother transition and strengthen familial relationships.
Further, different generations often hold varying perspectives on leadership, risk, and business operations. The older generation may prioritize accountability, stability, and tradition, while the younger generation might focus on innovation and change. To bridge this gap, the business should encourage family members to engage in purposeful dialogues to understand each other’s values and goals. Structured meetings, surveys, or feedback forms can also help gather input from all generations, making everyone feel involved.
Foster open communication to navigate succession planning effectively. Encourage all family members to express their thoughts and feelings; this can help identify concerns early. Establish a culture of honesty, which promotes trust and collaboration. Establish regular family meetings. Set ground rules for respectful communication that allow differing opinions to be expressed without conflict. Consider utilizing mediators or facilitators to aid in addressing sensitive topics. Technology, such as group chats or collaborative platforms, can facilitate ongoing conversations and ensure that communication remains fluid across generations.
Develop future leaders:
Building a pipeline of capable leaders (related individuals and other employees) within a family business is essential. Having outsiders inspires non-family member employees and family members to up their game.
- Establish mentorship programs to facilitate skill development. Businesses ensure knowledge transfer and leadership training by pairing younger family members and high-potential non-employees with seasoned leaders.
- Involve in business operations to allow potential successors hands-on experience. This engagement fosters familiarity with processes and cultivates a strong sense of responsibility.
- Support formal education and external training to provide educational opportunities; this enables family members and high-potential non-family members to acquire specialized expertise.
By proactively developing leaders, family businesses can reduce uncertainty and better prepare successors for future challenges.
How to set up succession success:
- Begin with early planning, communication, and preparation of the next generation, plus consider benchmarking against the best in the industry.
- Develop a comprehensive succession plan, including identifying potential next-generation successors (employees and outsiders), creating role profiles, and establishing training and development programs.
- The plan for learning the business should include goals and timeframes.
- Establish metrics to measure success; these should align with other employees.
- Set up mentoring with existing executives and/or getting the advice of an outside coach.
- Provide regular feedback.
- Focus on building trust, setting clear expectations, and engaging all relevant stakeholders.
What to do when succession plans are not working:
- It is crucial to re-evaluate the plan, consider alternative options like ESOPs or strategic buyers, and seek external guidance from professionals.
- Explain why it is not working for the next generation and try corrective action.
- Address any conflicts within the family, like those related to ownership, wealth, or business structures. Mediation or advisory services can also be helpful to get back on track.
- If still not working, work out a split, including help finding their next position.
- Inform other employees of the next generation exit.
The business is part of your legacy. Putting in the time, effort, and resources to do it right is essential.
