Passing the baton

John Tucker  is director of the International Centre for Families in Business.

Is passing the baton just a question of the transfer of management responsibility and away we go?

Succession is widely held to be a central management issue – perhaps the central management issue – in family business. This centrality is acknowledged by most academics and researchers in the field and is confirmed by the majority of business advisers with family business clients. However, the subject of succession in the family business often treats management and ownership as if they were the same thing, when in practice they are often two very different processes.

Research carried out at the International Centre for Families in Business found that the need to resolve family business ownership issues was seen as something taking place between individuals and their accountants and lawyers. Attitudes to aspects of inheritance and the passing of ownership were not forthcoming in the interviewees and responses about succession mainly focused on provision for the older generation in retirement and management succession issues, with a few indirect references to share transfer arrangements and legal matters surrounding transfer of ownership.

In contrast to management succession; there is often reluctance in the family business to address the issue of ownership succession. The process of ownership and share transfer is often accomplished slowly, or even avoided, in order for the predecessor to maintain control. One of the great strengths of the family business is stability of ownership combined with a flexible approach to strategy. There is a compelling argument for the process of ownership transfer to be protracted to maintain stability and flexibility.
 
Ask any group of family business people at seminars around the country to name their number one concern and the answer will invariably be 'succession planning'.
 
Consider some of the issues they raise:

"I will never inherit this business, dad thinks he is never going to die."
Son of a first generation family business owner speaking at a recent conference.

"It's impossible to work with my siblings in this business; it is all too painful."
The eldest sibling in a well-established family business.

"My father founded this business and I can't hand it over to my son, he is just not capable of running it, it breaks my heart."
The second generation managing director of a family firm.

What is so interesting about these quotes  is there is no reference to 'planning'. Is it that planning is inherent in the words used or is succession planning just too simple a concept to encapsulate the complexity of the process? Many of the legal and accountancy professionals will concentrate on formal planning, training and development for the successor – developing clear conceptual frameworks for thinking about the future of the business.
 
The 'succession issue' may also be rooted in the reluctance of the founding entrepreneur to 'let go' Much is written about the psyche of the entrepreneur and in particular issues of immortality and fear. The fear is in facing the inevitability of failing powers and accepting the need to hand over the reins, followed closely by the fear that the founder is replaceable and that to do so would destroy everything that has been built. Finally there is the fear that the next generation might be more successful than the first, thus diminishing the standing of the founder.
 
Whether the issue of succession in a family business is approached from a traditional legal perspective, concentrating on  an early well-thought plan; or is approached from the psychological person centred perspective, concentrating on the interpersonal world of the founder: neither fully explores or explains the complexity of colliding and conflicting systems. Even when the approaches are combined it is often actioned as a cross referral from one profession to another and not viewed as a fully integrated appreciation of interacting and often conflicting interests.

The next generation may wonder why the process seems so long and drawn out and why there is a reluctance to 'hand over' ownership. Is it about flexibility, stability, planning and strategy? Or is it about power, control, and loss of status, position and a possible loss of independence? There is also the question of faith in the next generation to run the business as effectively as the incumbent generation. It may be a combination of all of these issues but it will happen eventually and transparency in the process for both incumbent and succeeding generations is central to a successful transfer.

When family members face relationship issues as a result of involvement with the family business, the inevitable resulting stress has implications for the future success of the business, the wellbeing of the family unit and the health of the individuals involved. Maybe we as consultants and educators to the family business have to acknowledge that passing the baton in a family business is not the fast track 100 metres relay.