Creating a family business succession plan is a fairly straightforward, yet necessary, task. It details the transfer of power from one generation to the next, guaranteeing continuity so that the business can carry on. However, family dynamics often get in the way of creating and executing this plan. In order to transition seamlessly, you must first understand how your family’s structure at home affects business structure, and then learn how to maintain a strong structure in transition.
Families tend to operate in business as they do at home. Families that have clear and open dialogue about uncomfortable aspects of life will also be able to have uncomfortable conversations about business. Succession conversations are replete with discomfort.
A family business, much like a family at home, is required to be structurally sound, with a well-defined hierarchy outlining clear boundaries. When a family in business has structural integrity, transitions are more likely to be predictable and smooth. When a family lacks functional structure, chaos can ensue during times of normative and non-normative transitions.
The structure that succeeds contains clarity of leadership, as well as specific roles, rules and responsibilities for each member of the family. Some of these aspects can be understood covertly, such as manner of communication, expected work ethic and handling secrets. Others can be more overt, such as how to make and spend money, how to honor traditions, and so on.
These overt and covert aspects are unique from family to family, but the fact that clear-cut rules exist, in general, is consistent across the board. Rules can help support structure, and they can also challenge that structure if individual members choose to live outside the rules.
The same rings true for roles and responsibilities. Some are clear and well-defined, and others are learned behaviors over time. For example, there may be one person in the family business that has taken on the role of mediator—or perhaps planner or rebel. Another member may be the compliant one, trusted to do whatever needs to be done. The responsibilities are likewise born of the rules and roles, and can be automatic and internalized, or clearly stated. Some of these can be gender-based, age-based or dictated by any of a whole host of family values.
The ways in which the family functions within the structure is often mirrored in the family business. Therefore, if the younger generation has no authority in the family, then it is predictable that this will also be the case in the family business. This means that, when the younger generation determines a transition in leadership is warranted, there may be no clear path to execute.
Likewise, if the older generation has not groomed the younger generation for leadership, the leadership transition may not occur in a timely or effective manner. Hence, early succession planning is vital to nurturing the next generation.
The dual function of families in business means that there may be inconsistencies in leadership, which makes it critical to set clear boundaries and roles. For example, the family at home may be matriarchal in its decision-making and planning, but patriarchal in business sense.
Additionally, in-laws may have no authority in family decisions, but may be instrumental to the business. In other words, wearing multiple hats in different contexts can be functional, as long as each person knows which hat to wear and when, as well as the responsibilities that each hat entails.
Therefore, when looking toward succession, the real challenge is creating and maintaining structural integrity. The more intact the structure, the more predictable and seamless the transition can be. When the family business structure is not well organized, reorganization must become the primary goal. When reorganizing family structure at home, a family therapist can be helpful. When reorganizing a structure in family business, a family business consultant may bring similar value.
A consultant can evaluate and assess where the structure is vulnerable or cracked. Consultants can deflate power struggles, resolve new or generations-old conflicts, and, most importantly, clarify the roles and rules for each level of the structure. When clarity is in place, so is cohesion. Cohesion allows for family members to focus on the business at hand and maintain success for generations to come.
[Editors’ Note: To learn more about this and related topics, you may want to attend the following webinars: Roadmap to Selling a Business or Taking on Outside Investors and The Role of the Board in a Private Company. This is an updated version of an article originally published on April 4, 2019.]
©All Rights Reserved. May, 2021. DailyDACTM, LLC d/b/a/ Financial PoiseTM
Carrie Rosenbloom is a licensed marriage and family therapist, and attorney mediator in Ann Arbor, Michigan. She specializes in helping individuals and families navigate the complexities of divorce. Carrie also works with family businesses, helping them manage transitions, create succession plans, resolve conflict, and integrate a cohesive culture throughout family owned businesses. More information can…
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