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Letter from the US: Sunny with a chance of succession issues

What’s the forecast for family businesses in America? If it were a weather bulletin it would be a generally sunny outlook but with a persistent chance of showers. That’s the way one family business leader put it to me when confidentially discussing his own – multi-billion, multi-generational – mid West-based manufacturing business.

Of particular concern to this patriarch was handing the business over to the next generation.

By definition, succession is an age-old issue that will never go away. As long as families remain at the helm of multi-generational businesses, there will be decisions to be made about who takes over the business. Walmart, the largest family business in the US (and the world), has just announced its chairmanship will pass from Rob Walton to his son-in-law Greg Penner. Should the CEO be a family member or an outside executive? How do you groom the next generation for leadership? What is the place of spouses of family members?

In May, I had coffee with Joe Astrachan from Kennesaw State University’s Cox Family Enterprise Center and EY Americas Family Business Leader Carrie Hall, just after they released the results of a global survey of the world’s largest family businesses.

Astrachan and Hall confirmed that succession was topmost on the minds of even the biggest and oldest US family businesses.
“American family businesses are innovative leaders in the world. They are concerned with family and family longevity. They are pioneers in progressive employment practices seeking to balance long-term commercial needs with family welfare and the greater good of society,” Astrachan told me.

And US families seem to be ahead of the curve when it comes to creating modern management structures with strong succession considerations. They are more likely than many of their global counterparts to be considering these issues earlier. In terms of training and motivating the next generation, America is ranked third (India and Mexico are higher). US family firms have more women on their boards than any other country. The US is the second lowest in terms of percent of family members on the board of directors, which Astrachan and Hall translate into a willingness to increase the professionalism of the business.

As EY’s Carrie Hall put it: “Family businesses and their leaders are the ultimate entrepreneurs. They must continually innovate to grow and pass on a thriving business from one generation to the next. Succession isn’t an end point. It’s a process.”

But while firms struggle with the age-old problem of succession, the EY research also noticed that US families, in particular, are also confronted with a new problem ripped straight from the pages of a spy thriller. American businesses have found themselves increasingly targeted by cyber attacks, and for some reason or another have not yet adequately addressed cyber security issues.

Yet when asked ‘Will you spend more on data security in the next three years compared with last’, America was in the middle (India, South Korea, and Germany were on top and Belgium, Australia, and Canada on bottom).

Some problems are as old as family businesses themselves, while others are brand new, requiring modern, innovative responses. US family businesses must focus on the future to handle both challenges. 

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