Preparing the Next Generation: Part One

It’s not unusual to find family business employees in positions for which they are not qualified and would not be hired if they were not members of the business-owning family. As we mentioned earlier, 64 percent of family-owned businesses don’t require a family member entering the business to have the qualifications or experience necessary for success!

A good litmus test when hiring a family member would be to ask the question: Would this person be hired by another company to fill this position at this salary? Yet few family business managers ask this question. When asked to rank the statement, “Family members in our business would be successful in comparable jobs with other companies,” a survey of 45 family businesses with revenues of $100 million or less ranked it at 99 out of the 100 statements listed (indicating that they soundly disagreed with the statement). This clearly indicates that family members themselves consider competence unimportant for entry into the family business.

If the answer to the question “Would this person be hired by another company to fill this position at this salary?” is a resounding no, it doesn’t mean the candidate is incompetent for all positions. It does mean that this is not an appropriate placement. This is an example of a “family-first” business in which the well-being of the business is sacrificed in order to take care of one family member. When decision-makers choose to hire inappropriate family members, they damage the morale of the employees and lose credibility in the eyes of the family and other business professionals. Yet, confronting family members who are not performing well is difficult for most people.

Assessment tools show a person’s core traits, which are remarkably stable over time and circumstance. Effective assessments can heighten the accuracy of employment placements by identifying key attributes of personality, cognitive ability, and emotional intelligence that will predict success in key family business roles.

Practical Solutions

Deciding how the family business will continue beyond the current generation is one of the major turning points for any family business. The older generation often has trouble trusting the younger generation with the care and feeding of the “baby” called the business. The younger generation questions whether or not there is a role for them in the family business, and whether they want one.

The smoothest transitions happen when both generations can objectively discuss the needs of the business and the developmental needs of the successor. This process enables the older generation to talk about their expectations and concerns, while the younger generation can gain a perspective about what it takes to run the business effectively. To some degree, this takes the parent-child dynamics out of the transition and keeps the focus on business preservation. A timetable gives both generations a road map by which they can set appropriate expectations for the transition. Allocating time for this process pays off in reduced stress, conflict, and pain.

Many families consider the most important decision to be who will next lead the family business. However, they put off choosing a successor—almost always for emotional, not rational, business reasons. For instance, the current business leader may be unwilling to let go, or reluctant to face his or her own mortality. Eventually, when this family finally chooses the successor—usually in haste because illness or death require urgency—the family will discover the truth of the axiom, “Act in haste, repent at leisure.”

Failure to discuss succession and prepare the younger generation can lead to serious problems in the family business, including the lack of prepared, effective leadership. Incompetent leaders will likely experience stress that can lead to serious depression. Further, parents who do not attempt to reign in a child’s greed and entitlement or jealousy among siblings or cousins will find everyone spending more time and energy dealing with emotional issues that diminish the company’s productivity.

The Board, senior family members, junior family members, advisors to the business can all act to persuade, pressure, plead, goad the current leader to put the enterprise ahead of personal need and move forward with succession planning. Enduring the sometimes awkward, angry, hurtful, and difficult conversations will be well worth it. Buying “peace” by not having the tough conversations is never worth it.