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Many founders of family-owned businesses, FOBs, continue to have sleepless nights, wondering why their children are not interested in being in the business.
The desire of these founders is to have the family businesses continue after them, with their children at the helm. Many of these founders will not entertain any thought of an alternative to business transition; the succeeding generation must be the children.
Any other choice constitutes a failure in the transition process. It is not uncommon for the founding generation to put in place schemes to force their children to take over the family business. These schemes include refusing to fund their children’s education beyond the secondary level, and threatening to leave them out of the family will, unless or until a commitment is made to take over the business.
Not all the children will want to be in or be a part of the family business, and those who are involved will not always meet the expectation of the founding generation. The goal is to have children working in the business. It is counted as a failure if this is not the case. This measure does not consider the different configurations of active involvement in the family business.
Studies have shown that there is a greater chance of FOBs transitioning to children when there is early exposure to the operation of the business. Early exposure includes getting children to be part of discussions about the business – through family council and other family business-related activities; giving children summer jobs in the business; and allowing children to ‘run around’ in the business – where it is safe to do this.
There is also the recommendation for children to be informed from early that this is a family-owned business, and the plan is to keep it in the family. Children should also be told that the intention is to pass on the business to them. However, this should not be done at the exclusion of having discussions regarding other possible career choices, including been an entrepreneur.
Keeping children in the dark about their possible future role in the family business is not a good idea. Too many founders have chosen to wait until they are ill or ‘getting too old for this’ before deciding to lay out any plans for generational transition.
In most cases, early exposure of children to family business-related activities will provide signals regarding their interest in the business. The founding generation must not seek to force the issue when the signal seems to suggest that the children have little or no interest.
However, members of the founding generation are impatient of this position, and fail to expand the discussion to explore the different configurations of active involvement. The prevailing attitude is ‘you are either in or out’. But what does this mean?
Children’s active involvement in FOBs goes beyond working in the day-to-day operations of the business. Active involvement in the business usually takes one of three configurations: those who are in the business but not a part of the business, those who are a part of the business but not in the business, those who are in the business and a part of the business.
Since the focus is on active involvement, other configurations are not considered relevant to the discussion.
Those who are in the business but not a part of the business: Children who are in the business but not part of the business refers to those who are employed to the business, but play no active and intentional role in the operational or strategic direction of the business. The involvement in the business is more task-oriented, with a tangential relationship with what happens in the business. They perform given tasks, sometimes with high levels of efficiency and effectiveness, but have little interest in the business’ overall processes, systems, and strategic direction.
These children have little or no interest in governance structure such as family council or family assembly. In many cases, they enjoy the benefits usually accrued to family members by virtue of carrying the name of the family, but not necessarily by virtue of the substance of their contribution. The founding generation should seek to minimise the involvement of those who fall in this category.
Those who are part of the business, but not in the business: This configuration represents children who have a vested interest in the family business, have chosen to or not given the opportunity to work in the business. Reasons for not working in the business include: cannot get along with other family members who are working in the business; choosing to pursue a career that is different from the family business; and prioritising their own family obligations.
Those who fall in this group are usually ready and willing to contribute in areas such as strategic planning and governance issues. Children in this category can and should be given the opportunity to contribute in areas such as strategic planning, family council discussions, developing services and products that fall within the scope of their training and skillset.
Those who are in the business and part of the business: Generational transition assumes that the succeeding generation will comprise children who are willing and available to work in the business and be a part of the business. Those who fall in this group are usually involved in the day-to-day operations of the business.
Members of the C-suite of the family business usually come from this group of children. Evidence of their level of commitment to the family business is shown in both their willingness to work in the business, and to invest time and energy to move the business forward.
They will not always have the requisite training and skillset to match the needs of the business. That is, they are usually willing and available, but not necessarily capable in all the critical areas. In such cases, the business should spare no resources to provide or facilitate the necessary training to increase their capability.
The attitude of ‘you are either in or out’ should not be the guide in measuring the success of the transition to the succeeding generation. That is, children might be out of the business but willing and capable to add value to the business.
The process of encouraging and preparing children to be active and involved members of the succeeding generation should be compelling. That is, children should not be given a cul-de-sac scenario of having no way out.
The measures employed to encourage active involvement of the succeeding generation must be attractive and be too good to refuse. Areas that must be addressed to achieve this include providing and facilitating relevant training, providing appropriate and competitive compensation packages, and having a transparent and time-based succession plan.
The founding generation must plan with the knowledge that not every child wants to be associated with the family business. The generational transition of the family businesses must be approached with wisdom.
More anon!
Lawrence Nicholson, PhD, is a senior lecturer at the Mona School of Business & Management, University of the West Indies, author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family-Owned Businesses and a former director of the RJRGLEANER Communications Group.
English (US) ·