Determining who will succeed you when you retire can be a challenge, especially if you own a family business. You may want to hand the reins over to your child, but will he or she be a capable successor? Will he or she even be interested in the business and, if not, who will become the next leader? If you have more than one child, how do you choose between them?
“They have to know about the company,” says Gaia Marchisio, assistant professor of management and faculty associate at Kennesaw State University’s Coles College Cox Family Business Enterprise Center. “Many families decide not to tell the children anything about the company because they want to leave them free to choose and not feel pressured to enter. But they are not able to make a good decision if they do not know about the business.”
Smart Business spoke with Marchisio about how to deal with succession, how to prepare the next generation and the company for the transition, and how planning early can help to avoid conflict.
What steps should you take to begin succession planning?
Start when your children are born. Share your passion for the business and teach values and responsibility. Do not pressure your children, but educate them about the family business, giving them positive and authentic messages. Plan out over a longer period of time not only to pass from the first to second generation but beyond. Proper planning and open communication will reduce the risk of bigger conflicts in the future.
How can you prepare the next generation to enter the company?
Children who enter the company must have passion and enjoyment for the job; however, their respective talent must determine how far they go in the business. Some next generation enter the company because there is a need for them, not because they have a passion for the business. Then they find out they like the job and being part of the business’s history and tradition inspires them. This gives them energy to stay and deal with the inherent family business challenges. They can have all the passion in the world, but if they don’t have talent they cannot do the job properly.
The next generation must have clear roles and responsibility, which might mean involving them in the strategic planning process. Such involvement will give them a better knowledge about the industry and company and help them gain the respect and credibility of other family and nonfamily employees. Avoid appointing next generation as your assistant, with no clear responsibilities. This hampers their learning and undermines their future credibility and self-confidence.
How do you prepare the company for the succession?
Preparing the successor is not enough! The family member needs to gain the respect of the management team and other employees. If the next generation has the position because of their talents, it’s easier for the nonfamily members to understand their achievement. If you hire a family member who is not good at their job, you can lose the motivation of the nonfamily members and damage the culture created by prior generations.
Succession is a matter of relationships and actions coupled with communication in the company and in the family. Tell staff members what you’re going to do, listen to them, and reaffirm the organizational chart as it is changing. Try to avoid position competition and reinforce collaboration among family members. It’s important for the next generation to bring value to the company and not have a job created simply for them.
What problems can you run into with succession planning?
It might happen that children don’t want to have anything to do with the business, so you have a succession opportunity with no capable successors. Or you have too many successors, so you have to choose from among them who will be the best for the company.
You might have conflicts between generations. Often you have the next generation coming in with energy and new ideas, but those who are toward the ends of their careers don’t want to risk losing what they have built. There is also a chance that you pick the wrong successor. All of these things have a negative effect on the company’s performance and future. To reduce those risks you can equip the company with powerful tools: a strategic plan and a functioning board of directors. With them in place, a mistake can be corrected with the support of the family.
What are the benefits of proactive succession planning?
You try to anticipate possible problems and figure out possible solutions, fostering communication in the family. Sometimes I have people telling me, ‘But my children are not even 6 years old.’ But that is the right moment to start — not necessarily teaching them how to manage a company but teaching them how to work together in harmony, to work hard, to make decisions, be accountable and to earn what you deserve. Because one day they might not join the company, but they may be owners, and in both cases, you want them to be responsible and passionate.
Gaia Marchisio is an assistant professor of management at the Coles College of Business and faculty associate at the Cox Family Enterprise Center, both at Kennesaw State University. Reach her at (770) 423-6324 or firstname.lastname@example.org. Joseph H. Astrachan, executive director of the Cox Family Enterprise Center, and Pietro Mazzola, full professor of management at IULM, Italy, contributed to some of the research quoted in this article.