Preparing the Next Generation, Part Two: Cast A Wide Net

Cast a wide net

A 2006 study[1] provides good support for careful succession planning. In the U.S., primogeniture (the ancient, traditional practice of giving the whole farm to the eldest son) is the practice for about 30 percent of U.S. family businesses. In European countries it’s much higher. Family businesses that choose this path tend to under-perform other businesses. Considering all eligible and potential family members before making the choice results in family business performance that is equal to nonfamily businesses. Family businesses that chose outsiders to run the business fared significantly better than businesses in general. Fusing outside perspectives with the guidance and support of the family business seems to create a unique, beneficial chemistry. These cultures are often value-driven, stable, and long term in their focus. So it pays to cast a wide net when you search for successors.

There are two hurdles, though, when choosing an outsider. First, ensure that the leader has and wants the family’s acceptance. Second, make sure the leader shares the values that will fit the family business culture (as long as that the culture does not warrant change).

One of the best ways to head off the need for an outsider to run the business is for the family to begin to assess and develop family members for leadership early in their lives.

Developing leaders in a family business isn’t all that different from developing them in any other type of business. The difference is that in nonfamily businesses, there is just one pipeline to leadership, beginning when employees are hired. Family businesses can begin to develop future leaders long before their young people are hired by the business—in fact, when they are still children. Unfortunately, most business families don’t take this wonderful opportunity. When the family needs successors, they look at the generation of young adults and find that many have careers outside the business and don’t have an interest in it. Often it’s too late to kindle that interest. Even if young people are working for the business, if they are not being groomed for leadership from an early age, the family is missing an opportunity to:

• Implement a personal development plan for family members who work in the business;
• Actively develop the skills necessary for individuals to be successful as they continue to develop the business;
• Emphasize personal goals and personal development to help the business be successful and further the growth of individuals.

The planning process clarifies the overall direction of the company and how individuals fit into it—or don’t.

How do you prepare family leaders? Begin at the beginning. Watch kids grow and informally assess who among them has planning and organizational skills, and who has a hard time with those things. Do what families who have been successful for generations, such as the Rockefellers, do:  Involve young people in projects, maybe outside the business, maybe in a Family Council or other family meeting, that involves leading a group or a team, and see how they do. Give them a chance to show off their leadership abilities— and to develop them.

[1] Stephen J. Dorgan, John J. Dowdy,and Thomas M. Rippen. (February,

2006). “Who Should — and Shouldn’t — Run the Family Business.” The McKinsey Quarterly, Web exclusive.