Freeing the Next Generation from Founders’ Insecurities

Much has been written about the personality characteristics of entrepreneurs that make them resistant to succession planning. For example, studies show that many business founders come from backgrounds in which poverty, parental abandonment, or sudden death in the family have contributed to feelings of insecurity. The business, in this scenario, provides a sense of security and well-being that is threatened when the time comes to “let go.”

What is less widely recognized is that an owner’s insecurities inevitably spread to others in the organization, profoundly influencing their attitudes and behavior and magnifying their resistance to change. The cultures of family businesses thus become immensely important in determining the success or failure of succession planning.

In Managing Beyond the Quick Fix, Ralph Kilman, director of the Program of Corporate Culture at the University of Pennsylvania, describes how a culture is created in a business: “The founder’s objectives, values and behavior…provide important clues to what is expected from all members both now and in the future. Other top executives follow the founder’s lead and pass on the company culture to their subordinates….Employees take note of all critical incidents that stem from management actions.”

One does not have to look very hard to see examples of what Kilman means. When an employee does a good job at something and is nonetheless reprimanded because he or she was not asked to do it, the message becomes clear: Don’t take initiative. Other typical unspoken rules may include: People can’t be trusted; avoid conflict at all costs; work hard and don’t ask for things; keep ideas to yourself; hide problems and don’t report them.

In family businesses, it is essential to understand the direct influence the family has in developing the culture. We have found that a particular set of beliefs in the family often creates problems for succession planning. The family has erected barriers against the outside world to protect ways of doing things and hide deep feelings of inadequacy. This fortress-like mentality preserves an often tenuous sense of well-being, self-confidence, and survival. Along with it goes an attitude which family members verbalize as, “It’s embarrassing to have to ask for help.”

In Facing Shame, Merle Fossum and Marilyn Mason of the Family Therapy Institute in St. Paul, Minnesota, describe their experiences with families that are similarly immobilized, trapped, and shame-bound. “On the outside, these families are often the envy of others in the community,” these two authors write. “They live an ‘act-as-if life,’ that is, they act as if there is a prescribed way for families to live life. By expending such determination and effort on achieving, they can hope to surpass their shame. The message is implicit yet strong: ‘If you live by our rules, then all will be well.’ No one is allowed to tell others outside the family how empty and lonely family members feel. An inner voice shouts: ‘Maybe I’ll just try harder, and then I’ll be like the rest. I cannot let anyone know how inadequate I feel in these roles and social situations.”‘

In family businesses, it is easy to place all of the blame on the bull-headed entrepreneur who seems to be willing to strangle what he has created rather than accept change. That, however, distracts attention from the system that conspires to reinforce the owner-manager’s resistance. We see it frequently, for example, in the efforts of senior managers loyal to the founder who try to sabotage the decisions and leadership of the successor.

We often see it, too, in the attitudes of the new leaders themselves. One family business that we worked with provides an excellent example. In this company, the 79-year-old founder had given up the president’s office and ostensibly retired to Phoenix. On regular visits, however, he interfered with operations and chastised his “kids” for their incompetence. The two brothers and sisters who were in charge felt demoralized and were fighting among themselves. They were hardly kids: Charley, the president and CEO, was 59; Frank, the chief operating officer, was 44; one sister, Joyce, was 57, and the other, Marge, was 48.

A first-generation German immigrant, Dad had learned harsh lessons about human vulnerability in a war-torn Europe. In many respects, he “went to war” every day when he came to the office; through a singular focus on debt-free profitability, he kept a hostile world at bay. From all appearances, these survival tactics worked very well. The business was grossing $30 million annually.

Frank, Charley, Joyce, and Marge learned the same lessons — not from war but from Dad. This second-hand exposure to a cruel world is not always as riveting; some of the children raise doubts about a culture built on such a view, especially the youngest, which explains why they are often the ones who ask for help.

In this family business, it was Frank who contacted us. The second generation could not carry on a rational conversation about the business for more than 10 minutes without it erupting into a shouting match. Frank said he and his brother and sisters knew they needed help but their father opposed it. “He said he’d be embarrassed to have an outsider tell him how to run his business.” Did the father see they had a problem? “Yeah, a little bit,” Frank answered. “He sees we’ve lost $500,000 so far, but he says if we would just listen to him, we wouldn’t be in this mess.”

In spite of their differences with Dad, the children, too, resist changing “the old ways.” Their well- being has always been attached to having Dad ride shotgun. They never really had to make tough management or strategic decisions or feel the full weight of the business on their shoulders. They have little knowledge about the finances of the company because Dad and his long-time accountant were very secretive about the information. They have benefited from security that comes with acceptance of Dad’s ways, yet at the same time have felt intimidated by him.

With Dad’s stepping down, family members and employees are confronted by fear. Succession has taken place, but it hasn’t really taken place. Dad is worried to death about the financial losses, but he knows he’s too old to take the reins again. Real change cannot occur until there is a shift in cultural assumptions and beliefs, until the successors change their own self-perceptions.

We spent about nine months with the successors, focusing first on their relationships and management styles and then on business planning. Meeting every other week, we devoted a portion of each session to reinforcing their accomplishments and trying to reduce their anxieties over open discussion of issues. We made them more aware of the cultural assumptions that held them back and would influence their work together. We helped them develop more clearly delineated roles and rules as well as formal channels of communication. This fit well with the continuing rigid style of their family and business culture, yet allowed them to redefine themselves as leaders and owners.

After the sibling executive group was launched, we involved the 12 nonfamily managers in the succession process. Many of the people in the group held intensely ambivalent feelings toward the father. On the one hand, they were grateful to the founder and loyal to him. On the other, they, like the siblings, resented never being recognized for their contributions.

They also worried that the founder’s continued insistence on obsolete practices would drive the business into the ground.

The company organized small task groups of key family and nonfamily managers to tackle long-standing problems. The new family leaders began to tap the ideas and suggestions of managers who had rarely in the past been asked what they thought. A management council with the 6 family and 12 nonfamily executives was created to implement a strategic plan. This forum continues to build support for the new leadership while creating a solid management base that the business lacked before.

The culture of the family business in this instance, as in many others, was a powerful and hidden force which, until it was brought to light, prevented the second generation from developing a clear sense of direction and from exploiting business opportunities. Once the issues were openly discussed, family and nonfamily managers found new ways to cooperate. The business plan began to work and the company’s losses were reversed, creating hope for the future.

Edwin A. Hoover is president of LSI Resource for Family Business Management in Willowbrook, Illinois. Colette Lombard Hoover is executive director. The Hoovers are co-founders and managing directors of the Midwest Association of Family Business Owners.