Leadership decisions in a family business

Leadership decisions in a family business

How do you decide who will run your family business? This question can lead to great inter-family conflict if not handled properly. Here are some suggestions to turn a potentially bad situation around.

Partner, Head of Family Business

KPMG in Germany

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How do you decide who will run your family business? This question can lead to great inter-family conflict if not handled properly. Here are some suggestions to turn a potentially bad situation around. 

As well as being your greatest asset, your family-owned business can also be the greatest source of conflict amongst family members. The main problem areas are:

  • Getting family members into the business
  • Working out successions in leadership

The best way to ensure smoother transitions within both the aforementioned areas is to plan ahead.

State your intentions earlier rather than later

Often children go into the business because it is expected of them or to please one of their parents. Those youngsters that are genuinely interested in running the company will be the ones asking pertinent questions and making suggestions in the company.

It’s part of your job to encourage that interest so that, when the youngsters are mature enough to make decisions that count, you can hold a meeting that addresses the issue of succession. It is best to have a third party assist this meeting, someone such as a management consultant, who is non-partisan. At this meeting, ask if any of the younger generation present wish to join and want to one day lead the business.

You should also have an alternative succession plan so that members of the next generation don’t feel obliged to take on the leadership status if they don’t want to.

Difficult though it may be, you and other parents shouldn’t be disappointed if your youngsters don’t want to take part in the business you have built for yourself and your family. Everyone is entitled to pursue his or her own dreams.

If you force a member of the next generation into a position of leadership within your organisation, chances are that person will either not maintain the position for long or will handle it badly due to feelings of bitterness and being trapped.

On the flip side, if a younger member of the family does want to run the business, you and the rest of the family need to know about this sooner rather than later. Which, again, is why early communication is so important. That way, you can help the individual to start developing the skills the company needs long before he or she takes on the top leadership position.

For instance, you may want to coach the heir apparent through various core areas of the business, such as finance, sales and manufacturing. Exposing the youngster to the different areas of the company and also to ways of building relationships with employees and management will give the heir apparent an excellent understanding of the company. It will also help highlight the area or areas the heir apparent enjoys and in which he or she excels.

Tell your heir apparent to go elsewhere

An alternative method would be to get the heir apparent to work for several years in a related industry before returning, much more knowledgeable, to the family business.

Some owners insist that an heir apparent contender achieve a college degree, work somewhere else for a minimum of five years and show progress in their careers, ideally advancing to a management role.

You could also bring in an executive coach to help build and refine the heir’s management skills.

Smooth successions work best

For a succession to run smoothly, you need to put in a lot of work. There should be no snap decisions otherwise these will lead to long-term regrets. The appointment of a new head should also not be a foregone conclusion. All parties involved in your business need to fully understand the requirements of the job, how long the transition will take, and what the far-reaching responsibilities of leadership entail.

What happens to the former leader when the heir apparent takes over?

This should be incorporated in your planning as well. When the company is handed over, it is not a gift, it is a stewardship privilege that must be earned. It comes with massive responsibility. Included in that is what to do with the previous leader. You need to have a formal transition plan in place that clearly outlines both the temporary and long-term roles of both of your positions. You may well cede leadership but still want to have a role in the business. That role needs to be clear from the outset.

Make sure you don’t set unrealistic expectations

The successor will have to grow into his or her new position. Avoid pressurising them to constantly feel they need to prove their worth. Hovering over the successor instead of letting them find their own wings will most likely drive this individual away.

Eliminate any sense of entitlement

Demonstrate to the heirs how important the company is to the lives of others (colleagues, employees and customers) and also involve them in company philanthropic activities.

But what if the CEO is from outside the family?

For whatever reason, you and the rest of the board may have decided to appoint a CEO from outside the family.  In this case, it is imperative that you make sure family issues don’t get in the way of the selection process.

Make the leadership position’s objective criteria known to everyone involved

Set the criteria for the leadership position. Do this together with a selection committee that includes objective individuals within the company and outside advisers. Use this criterion to review all candidates.

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