Succession is the number one issue for all family businesses. Families that handle it well are more likely to be in business in 10 years’ time than those that handle it badly. Invariably, it is a very emotional issue. I’ve seen many cases where emotion can undermine the whole business.
If you’re lucky, succession may not be an issue. For example, it normally works better when you have at least one member of the next generation capable and willing to work in the business. It can also work well when the next generation is capable, but not willing, to come into the business. In this case, succession is about passing the business on to professional managers.
But where it can get difficult, and emotional, is when you have members of the next generation who want to come into the business but don’t have the skills to do so. This can create a big emotional headache for all parties involved.
In this case, the problem may not just be about the need to tell the next generation that they aren’t up to it. Often, the parents also find it hard to understand that their children aren’t capable of doing the job.
The best way to avoid this difficult and emotional problem is to bring in non-family professional managers at board level and let them deal with it. It will always be easier for them to communicate bad news to the next generation than it is for the parents.
In fact, I see a lot of family businesses hiring top people from outside the family for that exact reason – to tell the next generation that they’re not up to it. Many family businesses say that anyone who wants to join the family business – family members or otherwise – needs board approval. If the board is predominantly made up of non-family members, they can – and will – block incapable family members from joining. In this respect, there should be no difference between corporations that are family controlled and those that are not.
Another way to deal with the emotional issue of succession is to make sure that the next generation gains outside experience before they work in the family business. In fact, I think this needs to be a golden rule: outside experience must be gained before a family member is allowed into the family business.
Increasingly, I’m seeing family businesses making this a requirement. It can help establish the credibility of the next generation and build confidence that they are the right people for the job.
Succession needn’t be such a difficult issue if some of these practices are followed. Of course, all family businesses are different. But that doesn’t mean they can’t learn from others and benefit from following best practices.
Heinrich Christen, Partner, Family Business Leader Switzerland, EY