Living with the legacy

Barbara Murray is director of Family Business Solutions UK.

The transition into a subsequent generation is not always as smooth as one would like. Each generation has its own agenda whether it be achieving their individual dreams or taking a step back from the family business. Barbara Murray discusses five separate experiences

All family businesses know they should have a succession plan but few have anything formally documented. That said, my conclusion from watching and working with family businesses over the long-term is that a 'meta plan' is being formulated perhaps not on paper, but is in the hearts and minds of the senior and junior generations simultaneously. This article draws on the observations of five successors who attribute much of the positive outcome of their family business succession transition to the quality of the 'life planning' they were able to do with the older generation, and being able to clarify the role the family business would have in their lives.

Meta planning seeks answers to the two big questions of succession which everyone in the system wants to know. First, who will take over operations? Second, how will the governing powers of ownership control be assigned to the next generation?

In multigenerational successions, each generation's meta planning is initially done privately through reflection on what they are seeing and learning from events unfolding around them, and developing a sense of what they can make of the available opportunities. But the tipping point comes when a willingness opens up between both generations to share and discuss whatever options are crystallising in their minds. Whether a smooth succession or a turbulent one follows is correlated to the extent to which they can stay committed to the process of working through a solution together.
 
The family business aside, all adults have a meta planning to-do list. Adult development psychologists and ancient philosophers have concluded life's journey is a progression through the eras of young adulthood, middle adulthood and late adulthood. The late 20s and early 30s are a crucial time in the family business and also in the business family, as the pressure is on for the juniors to find answers to their questions. They also have a sense that time is running out, if they want to develop other alternatives.
 
Seniors in their 50s, 60s and 70s have the task of reflecting on their life's work and working out how to renew their life structure to enable them to live, work and love as they move into late adulthood. It follows, then, that moving on in life does not have to be about giving up but about re-creating and renewing one's energy. In family businesses, making these choices is more complicated as there are personal, family and business consequences to consider.
 
A common denominator for both generations is the growing awareness of time passing, generating increasing levels of anxiety. The generational transition process in a family business is about responding to the pressure to find a solution which is acceptable and feasible to those concerned, then putting that solution into action and moving on.

Entering the business as a trigger into transition
Our group of successors have all been through university and were in their 20s and early 30s when they started to see the family business as a 'real' option.

Stephen Falder had never considered the family business to be any more than "just a paint company", but when he began to look at it in a different light in his late 20s. "I then saw that it involved commerce and customer relations and it became more attractive to me. I saw it as a business, not a company." Being an outgoing person, he could see the potential for a good fit between his own personality and skills, and what the business could use to grow. Having entered the business, the succession agenda came to the fore. Stephen's brother John was already in the business and their father, Brian, then 58, was totally committed to retiring at 60 (the founder, his father, had died at 63 and there had been a history of heart disease in the family).
 
The entry of Stephen, the second son, set the scene for testing out the family succession solution of a sibling partnership. The brothers believe they get along well thanks to their ability to be "very, very forthright with each other but not aggressively so". Between the ages of 30 and 35, they decided who would be the leader (John) as they wanted to continue the leadership model which had worked this far.
 
Brian was able to step aside into the role of non-executive chairman and counsel to the board, and the meta plan was now concluded, paving the way for the detailed technical work of business and estate planning. Stephen says it worked because "as a family we have always been able to talk about money and death, and we have always been transparent about money and assets. We have a sense about the cycle of life, and we were told as children we would inherit shares when our parents die. It was upsetting I suppose but it was a good preparation."

Taking stock of your life
Young adults around the age of 28-33 tend to evaluate their progress so far in the adult world, and decide where to place their future efforts. It can be a painless review or it can be a severe wake-up call. Joaquin Uriach is the youngest of four siblings now all working in their fifth generation pharmaceutical company near Barcelona. Trained as an economical criminal lawyer, Joaquin found himself at 26 years old being faced with a difficult choice. He had been offered a partnership position in his legal firm and his father had asked him to join the rest of his siblings in the family business and work as a lawyer there.
 
He opted for the family business but took time out to do an MBA first. "It was a chance, and a challenge, to establish a new legal department from scratch in Laboratorios Uriach," explained Stephen. "Working with my family in a business I have grown up with appealed to me. My other three brothers were already there and I felt I had sufficient outside experience." Then began what has been virtually a 10-year transition from their father to the four siblings, who function in the 'team-at-the-top' mode.
 
Once the meta plan jigsaw pieces are in place, and there is a sense that it is working reasonably well, family business transitions can proceed smoothly. Says Joaquin, "Our father was very generous in contributing to, and not hindering, the handover. He had no serious fear of losing power. He not only recognised the time was right [with the four sons in place] but collaborated a lot in the process."
 
The setting of a psychological deadline – whether it is explicit or not – is the key driver for meta planning. It is a drumbeat for both generations to make some decisions and set things in motion. For some, like Brian Falder, there is a keen sense of mortality accompanying the memory of his own father's early death at 63. This in fact has contributed significantly to a strong culture throughout the business of having a good work/life balance: everyone finishes work at 5pm at their business. And the business is no lightweight, having just completed the flotation of part of a subsidiary business. In the Uriach case, although there was no stated deadline for the formal transfer of power, there was a sense that the time had come to move on and there was no going back to the old model. It is evident that once the last of the sons was installed in the business, the next phase was triggered and the succession solution was being tested. This phase has been underway for around ten years: "We did not rush it or have any deadline or circumstances pressurising us." In this time, they have been through the 'working together phase' and are at the final point of 'passing the baton' since they have been handed the reins and are now managing the business. Joaquin states "In this time we have created an advisory board, drawn up a protocol with the help of a consultant and created a board of directors."

Thomas Martin shares the fourth generation leadership of ARCO in the UK with his cousin Jo. "Smooth succession comes from planning the entire process and not becoming hamstrung by a single date in the calendar. There must be a shared understanding of the issues, and all participants should review a number of successful/unsuccessful case studies. You need confidence to speak up at this early stage," he says.

Alexander Scott's experience is an intensification of those described above. "I never thought about the business in my 20s. It was only when I turned 30 that I went to my predecessor and said 'I need to know whether I am wanted in the family business so I can figure out my life plan'. I didn't need to know that in my 20s". Alexander feels this conversation was a trigger for the senior generation to decide whether they wanted to test out the feasibility of a family succession or not. Alex was made an offer to join the business at the age of 33, but for practical reasons finally joined at the age of 35.

There's no privacy in the family business
How do you make your own way in life yet still keep a healthy connection to your family? Stephen Falder explains, "In a family business, you trade off your privacy for security. All your family know everything about your financial affairs so its very hard to untease your private life from your business life. Your family know all about your dreams and aspirations."
 
This warrants a lot of thought by young adults who may find the family business offer either somewhat seductive, or somewhat stifling. Alexander Scott reflected that in his view, "The family business 'offer' can override one's life plan. I was being made an offer of the position of chairman of a large family company in my mid-30s – there were not that many similar offers around. It can be very alluring."

Being born into a business family may lead to attractive offers much earlier in life, but it also adds a lot of complexity when trying to fulfill one's life-plan. In Alexander Scott's view: "It is very difficult to build a life plan if you're in the running for some kind of succession in a family business. Unless the criteria are made clear, those who are controlling the process can be compromising the life plan of that family member. At least if the process is clear, even if its not objectively fair, you can make a decision." Reflecting on his own efforts at life planning in his early to mid-30s, he says: "It would have been helpful for me if the decision criteria for selecting the successor had been clearer, but more importantly, the process was de-personalised through being managed by non-family executives in a nominations committee. So the offer, when it came, came with real merit. This is affirming for the successor and compensatory for the others. My psychological make up is such that I'm more comfortable with this kind of process and the feeling that I got there under my own steam, especially when your leadership gets challenged over time."

Turbulent times for successors in power
The decision to enter the family business is in my view as important as the decision to marry. These are key structural strands being laid down in the foundation of a young person's life. Does having made this commitment in good faith then guarantee a reasonably smooth ride for successors once they get into positions of power? For most of our successors this has not been the case.

Geoffrey Dovey had established a successful career as a chartered surveyor in commercial property when he decided to answer the call to work with his two brothers in the family business food suppliers and distributors based in Dorset, England. His father found it difficult to step back from his life running the family business, just as Geoffrey's grandfather, the founder, had done. "The transition from our grandfather to our parents in the mid 1970s was a turbulent affair, characterised by differing business visions and management styles coupled with the fact our grandfather was then aged 73 and our parents were 45," he says. This turbulence was to be repeated, although at an earlier age, during the transition to his sibling group when "in the mid 1990s our parents were approaching retirement age and their sons were early to mid-30s". Once everyone's expectations were finally aired and acknowledged, the tensions eased off.

What if there is a clash of vision?
A common feature of sibling partnerships taking over from a strong founder or controlling owner is the explicit or implicit clash of visions. Members of the next generation sibling team are supposed to carry forward their parents' legacy and continue with fruitful, happy lives. Juxtaposed with this seniors' agenda is the juniors' own adulthood agenda. Juniors are trying to construct a life plan as individuals and to assess the extent to which being part of a sibling team in the family business will help them achieve at least some of their own dream.
 
As Geoffrey explains "when we first joined the business we were all single and our mother and father still ran the principal family unit. As the sons began to settle down, two of the three formed their own family units." This, Geoffrey noted, coincided with "the introduction of the brothers' own separate life-visions, which did not necessarily accord with our parents' family business dream. There was initially a tendency for our parents to try and impose their version of what was in our best interests, based on emotional attachment rather than individually listening to our wants and needs." This had a direct impact in the business: "Increasingly, whilst we sought to act together for business cohesion, we all had separate agendas. This was increasingly recognised by our parents. In the end they gave their permission for us to do what we individually wanted to do. They recognised we all had separate lives with different life-visions, and imposing a one-size-vision-fits-all was just leading to unhappiness."
 
Counter-intuitively, allowing people to break apart and do their own thing may lead to increased closeness in the long run, rather than forcing connections through careers and ownership in the family business. Geoffrey Dovey's family is now collaborating fruitfully on designing the freedom which was sought by each brother to follow his own vision. "The shareholding structure within the business became a point of frustration and restriction from 2000 onwards, until permission was given by our father to explore various ways of re-organising our business affairs along more commercial lines, allowing family members their freedom."

In Thomas Martin's view, the dream is a "vital" element in any succession process as was gaining credibility. Thomas commented, "we engineered an opportunity to establish some 'senior management glue' through a managed change programme."
 
The stakes for personal credibility and risk are extremely high for the incoming successors, who need to demonstrate their ability to hold their nerve and stay at the helm doing whatever it takes to keep the system moving forward. Thomas says the role the seniors took at this juncture in the succession was pivotal. "The seniors had the foresight to step back, but to remain on hand if needed, and in this respect our succession plans have worked due to the significant preparation and education that comes with 'enlightened ownership'."

Expect your leadership to be tested
Alexander Scott has now been in the leadership role for around ten years. His family business system is between successions, with the predecessors long gone from their positions of control, and the next succession a long way off. Although one might expect this to be a relatively calm period (from the meta planning perspective and notwithstanding the business cycle), this has not been the case for him. He says: "As a leader I am being consistently challenged by one or other stakeholder groups in the family business system, but this is just part of the job and a healthy thing to happen. Successors have to live with the legacy they inherit and what they do with it is bound to draw attention, and possibly criticism, from time to time."
 
Living with the legacy is a tough task for successors. Says Alexander: "Anyone who succeeds in a family business is either creating or carrying a legacy. The challenge is to utilise one's talents so as to be empowered by the legacy, not constrained or overwhelmed by it. I'm confident that my skills set and approach to business is different, but I have been able to reflect on and utlilise the legacy to allow me to progress. Successors who ignore the legacy and are overconfident in their own style are likely to run into trouble, just as being too constrained by it will lead to stagnation. The middle path is the right way: respect it, and build on it."

Thomas Martin says: "The family business legacy is both a baton and a burden. I cannot see how it is either/or. It's a baton within the company in terms of an opportunity to realise the dream, and a burden among your own generation as you come to terms with how individuals perceive the change of rules as a result of succession."

A further dimension relating to the legacy in family businesses is the family's propensity for risk. Alexander Scott explains, "If priority is given to protecting a standard of living and if the wealth creation skills are not there, the appetite for risk wanes. But there is a paradox: the business needs to continue to take risks. If the legacy brings with it a form of governance, which oversees and controls operations and reduces the propensity to take risks, this can constrain the successor significantly." The system of governance a successor inherits can also constrain entrepreneurial efforts if it is biased towards caution and protection. "But," says Alexander "there are some amazing multinational, multigenerational dynastic families who can do both. For example, the Rothschilds are able to continue making big, bold decisions, and both manage and accept risk."

Life planning seems to be just as tough for seniors as it is for juniors. Each generation potentially holds the key to the answers the other seeks in order to be able to move on. If both generations are willing to talk sincerely and honestly about their personal dreams for the future – and for the future of the family business – and there is a good family business education in place there is no reason why there shouldn't be a smooth journey through transition.
 
A final reflection from Geoffrey Dovey on how to unblock a transition which may seem stuck, is to do with parents exercising their powers and enable a viable future to be developed together. "If permission is obtained from the older generation for the younger generation to re-build a flexible individual business vision, then transitions can happen far more smoothly and all the hard work of the older generation can cascade in a creative fashion into the current and future generations."