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How the Best Family Owned Businesses Manage Talent

family business, succession planning, nepotism

If you’re an owner of a family business, you are well aware of the age old adage that the ‘third generation ruins the business’.

With this in mind, many family business owners are coping with the issue by turning to more corporate methods of succession planning … after which more often than not there’s not a family member in site.

It’s long been known that the founder of a family business works hard, the second-generation tends to coast on the original energy of the founder and by the third generation, the business is set for the administrators. This is an alarming concern for family business owners, considering that:

  • Almost half of all family owned businesses will undergo top leadership transitions in the next few years;
  • Only 30% will be successful in transitioning to new leadership. This may be because so very few have succession planning in place; and
  • While most hope for success, it is actually basic firm survival that is at risk in this transitional stage. Bad transitions lead to profit losses, wage cuts and eventually administration. The livelihoods of your employees’ families are at stake.

The Problem

Why is passing a business on to a family member is so difficult?

1. Businesses focused on family members taking over don’t attract ambitious and talented workers for high-level positions.

This is because the workers are aware that they will never climb as high as they want to in that organisation. Family members are seen as a glass ceiling.

This can severely hamper your ability to hire in good talent. Many employees will judge the attractiveness of a position on their potential to advance. If it looks like they may get stuck in a mid-level management position because a son, daughter or cousin will inherit the business, they may turn down the job.

2. Family members who are in line to take over the business are generally not as well prepared as they should be.

They often will not receive honest feedback or tough environments to learn about how their actions affect people. More often they are lazy or dispassionate about the role, preferring other vocations or simply never bothering to discover their talents and passions because they have always had the family business waiting.

Some business owners have attempted to manoeuvre around this by setting a up a management plan for family members waiting to take over the business. Even if family members do seem to have the skills necessary to run the business, they benefit greatly from working in other organisations first and getting experience outside of the world they grew up in. Relevant outside experience also provides more weight and credibility to their appointment.

This trend has seen a number of strong companies dwindle away to nothing over the decades after a transition went bad. As generations become more independent and more likely to follow their own dreams and passions, many family business owners are finding it difficult to convince their younger offspring to take over the family reigns. Some of the top family business owners aren’t standing for it anymore.

The Solution

“At this stage it is safer to get professionals to run the company than pass the business to the next generation.” explains Francis Wong of Capitol Optical.

His father began the business and he took over at the age of 33, turning a struggling company into a thriving optical chain. He won’t be handing the business to his son however. He is choosing instead to train up a group of talented senior level managers, one of whom he believes will be capable of taking over the management of the business one day.

The transition from a family business or a start-up to a corporate organisation is never simple.

Apple relied on Steve Jobs’ leadership and personal branding very heavily, all the way to the end. Entrepreneurs are famous for clinging too tightly to a fast growing organisation, strangling and stunting its growth. Some organisations, it could be argued, never really manage it at all.

Don’t be stressed if the thought of raising a capable team to carry on your legacy once you retire is giving you sleepless nights. You are in good company. Succession planning is one of the most difficult tasks for any leader.

Here are some tips from those who do it right to make it easier.

Set a goal for your succession

It’s unlikely you want to work until you literally can’t anymore. Without a succession plan, this is the position you will be in. Decide at what age or what stage of the business you would like to step back and let the next generation of leaders – not necessary family members – take over your business. This is your timeline for implementing a successor.

Ideally it should be over a decade away. If you have less time than that, the sooner you can get started, the better.

Owners need to take a step back at some point

Accept that at some point you need to step back and allow other people to take over.

While it may feel more comfortable doing this with a family member, capable staff members passionate about the business and aligned with the right incentives can do more for the legacy of a business than an inappropriate family member.

Make it clear that family has nothing to do with hiring decisions

Develop non-family policies now.

It’s okay to have family working for you but it must be clear that they work according to the same standards as every body else in the business.

Hire according to skill and competency level and not family connection. Above all make it clear that you expect your other managers to do the same.

Separate your family life from your personal life

From my own experience, the most successful family businesses have very clear boundaries between work life and family life.

When they are at work, they behave professionally and operate within corporate boundaries. A blurring of these lines can mean that employees can often feel caught up in family ‘domestics’. If you do employ a family member, set clear boundaries and stick by them.

If you have a family business and are nearing the stage where you are considering transitions, put it to the top of your To Do list to make a proper plan for it.

Cofounder at RecruitLoop. I've been a hands on recruiter, manager, trainer, coach, mentor, and regular speaker for the recruitment industry for 20 years. Follow me @paul_slezak.