There are many ways a family-run business can run into crisis, but a common problem is in dealing with generational transition: family businesses are extremely susceptible to failure as they pass through the generations.
Everyone in the business has their own expectation of what will happen during a transition, and the different ideas are often not well aligned.
So How Can Family Business Advisors Help?
As Family Business Advisors, we focus on the tough spots, the often problematic and competing areas that intersect where a business owner must simultaneously lead the business, think about shareholder goals and also maintain healthy long-term family relationships. Our goal is to turn these competing priorities into complementary values and goals that create strategic business advantage.
Advisors can guide a family business through specific complexities within the business, the ownership and family values, expectations and roles.
Advisors can bring about alignment and strong communications in and between all areas so the business won’t suffer, the ownership structure won’t warp and most importantly, the family relationship won’t erode.
The Three Common Challenges
At some point, the Founder must contemplate the future of the business and the legacy that they would like to leave to future generations. Although intellectually it’s easy to contemplate this transition, practically and emotionally there can be many challenges that must be addressed to make this critical transition as seamless as possible.
With a generational transition, we typically see challenges around three key areas: conflicting expectations, successor preparedness, and founder transition readiness. These challenges play out uniquely in each family business system.
Tagiuri & J.A. Davis
Figure 1 – Family businesses encompass three distinct systems – family, business and ownership systems.
1 – Family System: Challenge of Conflicting Expectations
Typically, in a family business there is an expectation that the founding generation will transition leadership to a family successor. Conflicting expectations may surface when the Founder does not see a natural successor, or potential successors are deliberating about whether they want to continue to be part of the family business. If a potential successor wants to leave the business, they may be concerned about their ongoing relationship within the family. When multiple successors are being considered, there may conflict about who the right successor is and the process to identify them. A Family Business Advisor can help facilitate discussions to identify these kinds of conflicting expectations and plan actions that address these challenges on individual and family levels. Establishing regular family meetings (e.g. Family Council) can create a structured forum and regular cadence for families to talk about ongoing business challenges impacting the family.
2 – Business Systems: Challenge of Successor Preparedness
The key challenge in this area relates to the readiness of potential successors to lead the business. It’s very likely that the business has increased in complexity since the Founder established it. This period can create a very significant point of conflict between the Founder and the successor. The Founder may have a hard time letting go and the successor will want and need to develop hands-on business leadership experience. It’s critical that the successor has time with the Founder to gain this experience with guidance and support. A Family Business Advisor can help evaluate the strength of the successor pool, assess individual strengths, identify development areas and to work with successors to create development and action plans that increase overall preparedness. Because it may take years for a successor to be ready to take over the reins of the family business, it’s important to start this process of preparing the successor sooner rather than later to ensure a smooth transition.
3 – Ownership System: Challenge of Founder Transition Readiness
The challenge in this area relates to the Founder’s readiness to leave the day-to-day operations of the business. In some cases, the Founder may not yet be emotionally ready for the transition, which can present a unique challenge, and at its worst can manifest into passive-aggressive or other negative behaviours that can block the transition.
There are two aspects of transition readiness: 1) transitioning the day-to-day business operations effectively with an appropriate governance structure (e.g. Advisory Board or Board of Directors) and 2) identifying the personal vision of the Founder which defines their future role whether it be associated with the business (e.g. Board of Directors) or pursuing something completely different such as philanthropic activities. A Family Business Advisor can assist in this transition by helping the Founder to identify a compelling personal vision and a plan to achieve the vision, and ensure the appropriate governance structures are in place to support the effective transition of the day-to-day business operations to the next generation.
Addressing Multigenerational Transition Obstacles
While the challenges in each area – family, business, ownership – must be addressed, it is equally important to ensure that all systems work cohesively together to provide the strongest foundation possible for the business. This is how a Family Business Advisor can support you in your business optimization efforts – we explore how the entire family system interacts in a holistic way. Advisors such as lawyers and accountants will continue to play a critical role but will necessarily be focused on their specific area of expertise. These specialized services complement the focus of the Family Business Advisor supporting the full picture and integrating the competing systems and demands.
About The Author
Cathy is a dynamic Family Business Consultant, HR Professional and Certified Coach with over 20 years of experience providing strategic consultation to business leaders in global organizations and most recently, within the Family Business field. Cathy applies her extensive knowledge of organizational effectiveness and development, management/leadership development, change management and succession planning to the achievement of human capital development and organizational success.
Having developed her consulting experience and skills in the trenches with her clients, Cathy brings a diverse and complimentary set of skills, different perspective and pragmatic approach to the development of consulting strategies which are customized to specific client needs and circumstances. Cathy has also developed a passion for supporting family business owners and their families in their efforts to prosper across generations while working as the Director of Organizational Effectiveness at a start-up Family Office.