Father or mother may not know best

By Barbara Spector

Let us now praise family business founders. They are able to transform a great idea into a thriving enterprise that provides their family not only with financial security but also with inspiration that guides them for generations to come.

Along with their stellar entrepreneurial vision, many founders have a need to maintain control, particularly when relating to their children who join them in the family business. Even when "the kids" are well into their 40s, a strong-willed patriarch or matriarch may find it challenging to view them as accomplished businesspeople and take their suggestions seriously.

But if the business is to last through the second generation into the third and beyond, the family must prepare for new leadership—not just a new person to succeed the founder at the helm, but also a new type of leader who can address the inevitable challenges of business growth, product maturation and changes in technology and the marketplace.

If the business is to achieve the kind of growth that will ensure survival through multiple generations, the founder must learn to trust others: at first his or her own offspring, then talented non-family members who take on executive roles, and ultimately—if the stakeholders are serious about growth—independent directors.

At the same time that the company is growing, the family itself is growing and changing. As they reach the third generation, family members must prepare for the possibility that not everyone in the family will have the right skills to join the business—or that not everyone will want to, or that the business won't be able to support everyone who wants to work there.

At the cousin stage, maintaining a connection to the business and the family often requires conscious effort. If some family branches have moved away from the hometown, the cousins may barely know each other. They may view their joint ownership as more of a business relationship than a shared family treasure. Shareholder liquidity may become an issue. Family members not working in the business may agitate for dividends at the same time that the business needs capital for growth.

Family members in later generations may not be willing to fall in line behind a patriarchal or matriarchal "benevolent dictator," so consensus building will be required. Many families are surprised at how difficult this is to achieve.

Some families find the best solution for the business is to consolidate ownership (or to consolidate all the voting shares) in one branch. In many cases, such buyouts result in hurt feelings.

All of these are common dilemmas that are a natural consequence of family business growth. The families who know what to expect will be better prepared to address the difficult decisions when the time comes.

Astute founders take the time to educate themselves on the issues their families will face in later generations. They give their children and grandchildren the tools they will need to work together on developing procedures that will ensure the continued success of the family enterprise.

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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January/February 2017

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