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Succession in Family Businesses


Mustafa Dossajee on November 2, 2018 in Advice for Business Owners

As a family business prepares for succession, it is critical to factor family dynamics into the equation. Most businesses have clear financial disciplines, production processes, sales and marketing practices, and so on. Meanwhile family dynamics are often overlooked, though they often emerge as the most disruptive element in the business transition. Rooted in deep-seated emotions and patterns, family dynamics are often harder to identify and manage.

Says Dennis Jaffe, writing for the International Institute of Directors & Managers, “The family and the business, while including many of the same people, are vastly different worlds. Each has its own priorities, goals and expectations. They are two different systems, with different purposes. One involves emotional acceptance, the other rationality and results.”[1]

Other dimensions of a family system that can impact how succession decisions are made, communicated, and accepted include:

  • Boundaries – who is “in” or “out” in terms of sharing opportunities or information can make non-family business leaders feel excluded or disrespected.
  • Informal rules and hierarchies – for example, topics that “we don’t discuss”, or people in the wider family who are consulted on any decision may lead to behaviors not usually accepted in business situations.
  • Roles – entrenched family roles like “the baby”, “the smart one”, “the flake” may carry outdated or inappropriate assumptions about a person’s interests and abilities.
  • Alliances or rivalries – long-standing, emotionally charged patterns of support or conflict can influence succession decisions and their perceived legitimacy.

Let’s say a father promotes his son to a senior role in a firm. It may be a logical family decision, positioning the son to eventually take over the business. But it may be detrimental to the company if he lacks experience and the choice is viewed as nepotism, generating resentment amongst better qualified employees.

Although there is no one solution, these proven strategies that can help family business owners avoid or navigate such conflicts:

  • Ensure that everyone has a defined role and responsibilities — i.e. each family member contributes meaningfully to the business and is not simply there by virtue of his or her relationship. Performance appraisals should be applied equally to non-family and family members.
  • Don’t give family members special treatment – perks, opportunities, “free passes” – as this may demotivate other employees.
  • Practice open communication with employees about goals and decisions. Other employees will appreciate understanding the succession plan so that they can contribute constructively towards it.
  • Separate family from business activities and decisions. For example, family members should not be allowed personal use of business assets.
  • Pre-determine how conflicts will be resolved, using an external expert as needed.

 

[1] https://www.iidmglobal.com/expert_talk/expert-talk-categories/managing-people/family_relationships/id20570.html