A firm’s owner can impede generational succession

Seven key ways to deal with transition of a family business.

Family business, illustrative stock photo.Family business, illustrative stock photo. (Source: Gabriel Kuchta)

Self-reflection by the owner

One of the key skills of an owner of a family business is self-reflection. The courage to critically reflect about oneself during certain periods of an entrepreneur’s life allows for not only positive development of the business but also timely understanding if one’s life forces are becoming exhausted, with a lack of further creativity or a flagging ability to keep up with a changing market or with the competition. Those who are able to do this are also able to decide not only about passing on the leadership of the firm, but also to be objectively involved in this process and fulfil the necessary steps in making a transition without negative consequences. There are many examples when owners have become a major impediment to the further development of their own firms or transition to successors.

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An unbiased approach

When deciding upon and carrying out succession in family businesses, it is necessary to maintain an objective viewpoint not only when considering the possibilities at hand but also when considering the suitability of specific successors. If a child or other family member is available to take over the firm, he or she should be approached just like any other possible manager and his or her skills, education, experience, and personality need to be objectively evaluated. During a transitional period, their performance should be evaluated critically and adequate feedback needs to be given in order to assure the necessary progression. Owners who turn a blind eye to the lack of abilities of potential family successors and try to view them in a better light than reality often see negative results or a worsening of the firm’s culture and relationships in return.

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Timely preparation

Entrepreneurs influence the development of their offspring from their earliest days. Young children perceive how their parents go to work, how much time they spend there, exactly what they are doing and who they are working with. As they grow up, the first possibilities to get a taste of the company’s life present themselves when they are invited to help out with some simpler tasks. Children learn the family values and learn to recognise that similar values are also reflected in the professional life of the family business. These attributes are commonly seen in countries where family business has a much richer history than in Slovakia. The company develops as it passes on from generation to generation and the new successors consider it an honour (and they are proud) when they are chosen to take over the leadership of the family company.

Planning and communication

Intensive and open communication is the alpha and omega of interpersonal relations. The same goes for families and for family businesses. Each family member should have their role clearly defined in the company, as well as those who do not work in the company directly and are “only” co-owners, and those who are not involved at all but only provide an advisory voice from time to time. Trust and open communication between the founder and successor from the first steps of their joint process together is one of the foundations of a successful succession. This also creates a favourable environment for planning the entire transitional process. Handing over leadership is not a matter of one month or even one year. The process needs to be planned in advance: its possibilities and the engagement of individual family members, but also for company staff and grooming the successor. This area is quite underestimated in Slovakia. There are still entrepreneurs who are nearing sixty who believe they are irreplaceable and that these matters are of no concern to them at all.

Appropriate outside help

Every company mainly consists of people: in the internal environment it is the owners, managers and employees; and on the outside it is customers, suppliers, business partners and media. No family business can function without people from “outside”. Even at the highest level of management, or when there is a lack of appropriate successors in the family, a good manager from outside the family can bring objectiveness, an external viewpoint, personal experience, and often calm within what can be an insecure situation or broken family relationships. With regard to succession, the choice of a good professional manager can also mean that the company will sail through quiet waters during the transition between generations. The scope of such help can be anything from short-term advisory activities, through the engagement of temporary managers to the entry of managers from outside the family into the ownership structure of the company.

Growth requires standardisation

Most family businesses are gradually built from scratch, with few employees and, depending on the sector, with the least possible investment into systems and IT tools. A formal structure is not necessary and processes are simple. Individuals hold multiple, accumulated positions. With good results and increasing development, the number of employees grows and there is
a need to formalise the concrete processes, responsibilities, and powers of the owners, managers, and employees. If the number of employees, customers, or suppliers grows quickly and the owners/managers do not carry out a consolidation of processes and organisational issues at a certain point, it could have a negative impact on production, sales and relationships – with the consequence of poor quality or an inability to meet deadlines. With the number of employees increasing, the first ones often move higher and build the middle management level. It is necessary to work with these individuals and develop them not only as professionals, but also as higher-level managers.

More transparent relations

The bigger the company and the less standardised processes, the more complicated the relationships of the company are. In a family business there is the basic triangle of relations: owner-manager-family. The founder and his or her successor can either work like two co-owners, or like superior and inferior, or parent and child. These types of relationships need to be distinguished and divided in order to achieve the already mentioned objectiveness and to maintain a favourable corporate culture in relation to other family members and employees.

Mario Fondati is Partner at Amrop and Family Business Practice Leader

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