Tom is the CEO of a prosperous family business. He has always been a conservative fellow and has plodded along over 25 years providing good service, a solid product line and aiming for predictable results. He believes that it is this strategy which is the reason for sustaining a loyal base of customers and employees with an average tenure of 12 years. Conservatism has also allowed him to establish a generous pension plan and the ability to bank some good cash reserves. He will be retiring in five to seven years, relinquishing control to his sons desiring to finally travel the world with his wife. But he wants to be sure the legacy of the business continues.
Rob is Tom’s son. He is more of a risk-taker and believes that being the first to market is a definitive advantage. He believes the company needs to grow in order to survive in what is becoming a competitive industry. He has encouraged his father to invest in process improvement, state-of-the-art production equipment and progressive training. Tom does admit that his son’s innovative ideas have spurned the growth of the firm in recent years but he is concerned about their diminishing margin and when all of this will really pay-off.
Yet both Tom and Rob are a little nervous. Tom wonders if the company will be able to continue to thrive with his kind of “investment-driven” strategy that his son believes in. Rob wonders if his Dad will ever REALLY let go and allow Rob to fully assume the reigns.
What do you think?
Welcome to my world. This is similar to the issues I face when consulting with family-owned businesses. Often times there are competing values. It’s not so much that family members disagree on strategies, tactics or even the mission or vision of the company; it is more that their values are very different. They see the world through different lenses. They make decisions based on a different set of criteria. What might appear to one member as a “dangerous road to be carefully navigated” to another might be a challenge to “see how fast we can take that curve!”
Who is right? Either? Neither? Both?
Being RIGHT is hardly what is important. What IS most critical is how this family will be able to merge their diverging values into a strategy which will ensure that the company continues to prosper. Tom’s values got them where they are today but Rob’s values might very well propel to where they need to be to continue prosperity.
Of course it would take more than a two page article to communicate all of the details which need to be considered when helping a firm like this align their values and goals. But I have outlined a few (albeit oversimplified) issues which must be considered:
1. Start with the vision. No one can decide how they will make a journey until they are clear about “where they want to end-up.”
2. Identify the common ground for all the principles. The thing that gets in the way of good decision-making is emotions. Being clear on the “common-ground” allows the players to take the emotion out of the decisions which need to be made.
3. Create a third person who will be at the center of every decision – THE COMPANY. Remember that a corporation is a legal entity and retains the same rights as a person so weigh every decision with the impact to the company as a whole rather than only the individual shareholders.
4. Be clear on roles and responsibilities. When the principles that are transitioning out of the business understand and agree to what responsibilities they will relinquish and WHEN they will relinquish them, it makes it easier for the next generation to assume the role.
5. Create a clear succession plan with a timeline and accelerating and decelerating involvement from the appropriate parties.
6. Provide the right level of training and coaching for the emerging leaders. There is no worse formula for failure than throwing leaders into positions they are not ready for.
7. Invest time in understanding intergenerational differences. There has been a lot of information published on this topic. It is critical that both or all three generations, if applicable develop a greater understanding and appreciation of the others.
8. Create a family board to include members from each generation as well as an advisory committee. This should include key leaders in the company who are NOT family members as well as advisors who are not retained by the business to ensure impartiality. This allows family members to gain the perspective of experienced professionals outside the family.
9. Get the right training, coaching and mentoring or the emerging leaders and principles. This might mean going outside the family to retain experts in the vertical specialties needed.
Family businesses comprise 80% of all business enterprises in North America. They account for 60% of total U.S. employment, 78% of all new jobs. It’s not surprising that nearly 40% of family businesses in America will be passing the reigns to the next generation over the next five years according to Business Week Magazine.
Yet the most incredible statistic by far was the one postulated by Robert Avery at Cornell University in his paper, “The Ten Trillion Dollar Question: A Philanthropic Game plan.” Avery noted that by 2050, virtually all closely held and family owned businesses will lose their primary owner to death or retirement. Approximately $10.4 trillion of net worth will be transferred by the year 2040, with $4.8 trillion in the next 20 years.
The plain fact is that family businesses are in trouble because succession plans are quite obviously less and less effective.
Chances are if you are reading this, you or someone you know will be transitioning their family business.
What are they doing right now to prepare for that?