Why is it that most family businesses do not make it past the first generation? One reason is that family business leaders (FBLs) fail to properly appoint the right successor, or one at all, and create a workable succession plan. This is an all-too-common cause, making family businesses “curses” for remaining family members after the former FBL is no longer with the business.
Family member successors are often picked because of family reasons, which may be the wrong reasons. As a result, these successors are put in a position to fail because they do not have the skills or personality needed to succeed. Not everyone has the passion, aptitude and leadership personality for being an effective FBL. It isn’t fair to put the son, daughter or other relative in that position if they do not have those traits.
“What do you mean I can’t run the business forever?” As silly as this statement may sound, it shows how illogical it is for an FBL not to have any successor chosen. Yet many FBLs hold and control the day-to-day leadership role in their family business right up to the moment they take their final breath. They postpone or entirely ignore picking a successor until it’s too late.
Even though succession selection is one of the most important business decisions, it is often never made. Most of the reasons business owners don’t address the subject of succession selection are nothing more than excuses based upon obstacles around which they could successfully navigate. Every rationalization for not addressing succession planning can be, and should be, overcome.
You can’t run your business from the grave, but implementing a few steps beforehand will give you a greater chance of continuing to run under the leadership of your chosen successor long after your own batteries have run down. Selecting a successor in a family business is no easy undertaking, especially if several siblings are in the running to be the new leader and the parents have treated and loved their children equally all their lives. In fact, surveys show that not formally selecting a successor is more the norm among FBLs than it is the exception. There is an aversion on the part of most FBLs to succession planning.
The choice is yours. The succession selection can be an intimidating process, but it can also be a process filled with the spirit of joy and giving. Taking a positive approach, keeping an affirmative mindset and looking out for potential snags along the way will all make for an easier journey.
Thursday, September 4, 2008
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One of the most overlooked criteria by family business leaders in selecting a management successor is asking which family members wants to risk their capital and ultimately acquire control of the company's voting stock. When family take a pass on risking their own capital they are rendering a vote on their capacity to make money leading the family business and rendering a vote on the busines itself to make money. Family business leaders that gift both the management and voting control of their operating business to family will almost always destroy the equity in the business and family relationships and usually in that order. Passing a family business to the next generation has always been code for gifting. The smart family dynasties have have always understood that a business --especially a family business-- must always be for sale, if not to family then to a third party. Ultimately the smart family business leaders understand that knowing when to exit a business through its sale is as important as knowing when to start or invest in one. The smart owners know that pursuing the "longevity" of a business to the exclusion of other leagacies is fools gold.
In my new best selling book, Every Family's Business I offer family business leaders 12 questions that will guide them and their family through the succession process with the goal to preserving their wealth.
Thomas William Deans Ph.D.
Author
www.ProtectingFamilyBusinessWealth.com
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