Executive Suite: Succession Plans in a Family Business

As I said in this space last month, family life, even under the best of conditions, is difficult. Business, even under the best conditions, is difficult. Combine the two and life can become extremely stressful. I also explained the problem in most family businesses is that family members play out their familial conflicts on the stage of the business. Sibling rivalries, marital conflicts, and other rifts become open wounds in the crucible of the family business.

We discussed some keys to handling this challenge and this month we are moving on to another family business issue—succession.

The Problem with Primogeniture

Isn’t it amazing that whenever we hire non-family people for key decision making positions, we look for the best, most able performers we can find? With family, however, the above criterion often does not apply. Rather, it seems the determining attributes are gender and birth order. Male family members still “man” the critical power roles. Female relatives are often assumed to eventually marry and have children, and thus are passed over for long-term critical business roles.

The oldest male usually is appointed to lead the business, whether or not he is the most qualified person. Think about the potential negative consequences of that. The family may not be passing the reins to the most competent heir. Birth order, after all, is not a determinant of leadership ability. Hence, on an objective basis, a major business blunder may be made. Possibly compounding the problem, this can be devastating to the younger sibling. He or she could have the skills of a Jack Welch, but will have little or no chance to reach the top of the family company. Ever.

Let’s look at an example.

Joe, the older son in a longstanding New York family printing company, was regularly agitating his father, Dan, to work with the company lawyer on a succession plan. What was most important to Joe was holding the title of president. His younger brother, Kris, didn’t think this was a good idea. Kris just didn’t feel Joe was capable of making sound, rational business decisions. He feared for the long-term survival of the company if conservative Joe remained in charge. Moreover, many in the company felt Kris was the better horse to bet on.

Kris did what he could to stall the succession process and wondered whether he should even stay in the industry. It was an arduous task for me to help them work through their issues.

Working Toward a Solution

When it comes to succession planning here are some ideas.

1. It can be very helpful to assemble an advisory board, consisting of people acceptable to all (or at least most) family members. In critical areas, the owner/president can call on these advisers when making key determinations. The group’s members can offer far more objective input on a critical decision than a parent can. What’s more, the business leader can sidestep a good deal of the heat if the verdict is determined (or at least vetted) by an outside group.

2. An objective perspective can go a long way toward resolving conflict. Too often a parent will make a decision largely on the basis of how a family member may feel about the decision, not on what is best for the business. Often the parent’s inclination to go with the “feel” criterion is driven in part by the fear of being resented for the decision.

3. The current business leader must assess carefully the talents of the children (as well as qualified non-family employees) in determining who will be doing what in any succession structure. The appointment need not be permanent. The new leader could have a three-year term, leaving the door open to a change if necessary. Leadership could even be rotated among some or all of the children. If egos and titles are the hang-up, the patriarch could remain as president and place his children in vice presidencies.

4. There is a flip side to this. While decisions must be made on the basis of what is best for the business, no family member should be ostracized should he or she decide to leave the company. The company will be healthier if the door swings both ways.

5. Finally and above all, there should be regular management meetings, during which all family managers act as responsible trustees of the business. If necessary, have an outsider chair the meeting. Whatever you do, make it an exercise in what’s-best-for-the-company thinking. There is no substitute for consistent practice to move people away from self-interest and family strife toward sound business decisions that contribute to the health of the family—and the company.  

Dr. David Claerbaut has spent more than 25 years consulting in the graphic arts industry. You can reach him directly at 702-354-7000 or email him at drdavid@fcbb.com. Learn more at www.MyPRINTResource.com/10746916.