Succession in the family business is undoubtedly the foundational issue to be addressed in continuing my theme of the basics of family business dynamics. But when we say succession, do we mean ownership, leadership, estate planning or "What the heck will I do with myself if I am not running this place?"
I attended a client's holiday party last week. (They are so busy during December they wait until January.) It was a nice affair with good employee representation. As is protocol, the owner and founder stood up to thank everyone for their hard work during 2011, and then took a moment to recount the 60-year history of the company. And in closing he made one final announcement: Effective immediately his son would be the president of the company.
What do you think the reaction of the employees was? What do think it would be for most family businesses? Could be good, bad or ugly. Chances are this declaration would not evoke a unanimously positive response. But in this case there was widespread and sincere applause, cheering and standing ovations. Why did this passing of the baton happen so smoothly? Because the next generation was ready.
Keys to development
Yes, there are many questions that need to be answered to have a successful family business transition. But lining up the next generation of business leadership is at the core.
There are some key ingredients to developing a successful next generation family business leader.
Independence: Next-generation leaders must have confidence in themselves, their thoughts and their beliefs. Much of this can be developed while working in the family business by constructing and leading significant projects. In the case of my client, he began a division, got a loan, hired employees, and increased revenues more than 15 percent. But the shortcut to creating the required mentality is to work somewhere else early on. This is why so many multigeneration family businesses include this requirement in their family business constitution.
Competence: This is more than just being able to do the work. It means developing bottom-up experience. Not just being the accountant, but being able to reconcile the accounts and perform the journal entries. Not just being a sales and marketing manager, but having been on quota and worked the trade shows. IBM, originally a family business, had an unwritten rule that to be a top executive you needed to have spent time working as a sales rep. It also requires that you gain some level of external knowledge and training regarding your function, whether through reading relevant material or attending seminars and workshops.
Work with people: It is not enough to just be smart and confident. You need to be able to work with people. The book "Emotional Intelligence" by Daniel Goleman outlines two studies measuring the "success" of a batch of high school valedictorians and Harvard graduates. He found that those who possessed the ability to perceive the emotional state of others and react to it in an appropriate manner were much more successful in their careers. The ability to effectively communicate falls into this same category.
No special privileges: Showing up to work on time, staying late, taking on special projects and being measured by the same metrics as everyone else shows that you are part of the team and that you want to be judged on the merits of your work, not your bloodline. This will help the next generation gain the respect of co-workers.
Stepping back, these qualities could simply be labeled leadership. Steve Miller, co-founder of UNC's Family Enterprise Center, encapsulates it this way: "There are many factors attributable to the success of a family business, but none is more essential than leadership. The difference between those family businesses that succeed and those that flounder or fail can many times be chalked up to the quality of leadership."
The beginning of the year is the perfect time to evaluate the direction of your family business. In that assessment, nothing is more critical than measuring and preparing for the readiness of the next generation to lead the family business.