Structure Is the Key to Stronger Family Business Succession Planning

The Roles of Each Member Determine How You Structure Your Family Business Succession Plan

Creating a family business succession plan is a reasonably straightforward yet necessary task. It details the transfer of power from one generation to the next, guaranteeing continuity for the business. However, family dynamics often get in the way of creating and executing this plan. To transition well, first understand how your family’s home structure affects your business. Then, learn to maintain a strong structure in the transition.

The Family in Business Versus the Family at Home

Families tend to operate in business as they do at home. Families that have a clear and open dialogue about uncomfortable aspects of life can also have uncomfortable conversations about business. Succession conversations are replete with discomfort.

Like a family at home, a family business must be sound. It needs a clear hierarchy and defined 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 occur during normative and non-normative transitions.

Family Businesses Need Structure and Rules

The successful structure has clear leadership. It also has specific roles, rules, and responsibilities for each family member. Some of these aspects can be understood covertly, such as communication, work ethic, and discretion. Others can be more overt, such as how to make and spend money, honor traditions, etc.

These aspects, both overt and covert, vary by family. But, there are generally clear-cut rules that exist. Rules can support structure. But, if members choose to ignore them, they can also challenge it.

Roles and Responsibilities of Each Member of the Family Business

The same rings true for roles and responsibilities. Some are clear and well-defined, and others are learned behaviors over time. For example, one person in the family business may have 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 can be gender-based, age-based, or dictated by various family values.

How 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 promptly or effectively. Hence, early succession planning is vital to nurturing the next generation.

Creating and Maintaining Structural Integrity in Succession Planning

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.

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.

Therefore, the real challenge is creating and maintaining structural integrity when looking toward succession. The more intact the structure, the more predictable and seamless the transition. When the family business structure is poorly 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 damaged. 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 family members to focus on the business and maintain success for future generations.

We think you’ll also like:

1. Tips for Creating an Effective Family Business Charter
2. As Leaders Age and the Unexpected Strikes, Developing a Succession Plan is Mission Critical
3. 6 Ways to Make Your Family Legacy (and Wealth) Bulletproof

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. What’s it Worth? Valuing a Business for Sale
2. Selecting the Right Valuation Expert
3. Negotiating an M&A Deal

This article was originally published in April 2019 and updated on May 27, 2021.] 

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