Category Archives: Succession & Continuity

Renewal Energizes Multi-generational Continuity

Michael Fassler
Michael Fassler

The new year is upon us! This is a great time to consider the power of renewal and its impact on multi-generational continuity of your family enterprise. Multi-generational continuity requires commitment to the future for the family enterprise to sustain itself and renewal results in commitments. Consider engagement in renewal on three fronts: family relationship, strategic and personal.  This engagement will result in commitments on these fronts, all working in concert and serving to energize the family business system for multi-generational continuity.

Let’s consider the meaning of renewal. The Merriam-Webster online dictionary defines renewal as “the act of extending the period of time when something is effective or valid; the state of being made new, fresh, or strong again.” When you consider that “it’s natural for families to tend toward dis-organization and separation over time”[1], that business strategies are always moving toward commoditization, and that individuals tend to get into and remain in their comfort zones and become complacent, renewal on all three fronts extends and strengthens the effectiveness of your family relationship, your strategy and yourself.

The most significant risk to multi-generational continuity is deterioration of the family relationship. The result of engaging in family relationship renewal is an increase in affinity throughout the family making it more attractive to be together and work together thereby decreasing the risk. Increasing affinity requires spending time together in settings where individual family members feel their voice is heard, their contributions matter, and they are able to enjoy the company of other family members. Options include family events such as family celebrations, family meetings, family vacations, family business conferences and family retreats.

If your family events are feeling stale and the lack of energy or participation is waning, reach out to a broader segment of the family for input on freshening up the content and activities. Sharing your own expectations and getting updated on others’ is perhaps the most powerful outcome of family relationship renewal.

Competitive pressures are fierce and maintaining an edge in your marketplace is a continual challenge. Strategic renewal helps you maintain, if not gain, an edge. Strategic renewal involves making decisions to commit resources to evolve how your business creates value and competes in the marketplace. It results in commitments such as: deepening customer and/or vendor relationships to increase their cost of switching; building your brand; evolving your processes to achieve a higher level of operating efficiency; divesting of a legacy business enterprise; or increasing your geographic or product line scope to gain economies of scale.

You know a commitment is strategic if the investment requires making a trade-off such as between the investment and increased dividends. Investing in strategic renewal takes courage, particularly when things seem to be going along rather well and there is not a crisis at hand.

Personal renewal is about focusing on yourself in order to learn and grow your capability to be effective in your multiple roles as a family member, business leader, shareholder and director. Although seemingly more simple because it requires only you to commit, personal renewal requires courage as it involves self-examination and an increase in uncertainty. Personal renewal involves engagement in such things as changing the way you behave, learning a new or deepening an existing functional skill, understanding better the impact you have on others, taking on new responsibilities which involve risk of failure, and sharing power and control. Making commitments in these type of areas can be tremendously energizing for you due to the sense of satisfaction gained from the growth which takes place.

A practical framework to apply to renewal on each of the three fronts – family relationship, strategic and personal is:

  1. Reflect on the past.
  2. Assess the present.
  3. Imagine the future.
  4. Commit to action.

Periodically applying this renewal experience framework will result in commitments which create the energy critically important to achieving multi-generational continuity.

What will you do this year to renew your family relationship, your strategy and yourself?

[1] David Lansky article: “Ties That Unbind” in Private Wealth Magazine; March/April 2015.

The Power of Questions

Barbara Dartt
Barbara Dartt

There will come a time during your family business succession journey when progress requires you to give up what you love to do and what you are very good at to make room for successors to learn, grow and flourish. This is some of the hardest work of succession.

Part of the trauma in this process is watching your bright, passionate and energetic successor – someone you have great confidence in – make decisions that you’ve made for 20 or 30 years. As you would expect, they make some missteps. They collect the wrong information. They take too much time. They move slowly on small decisions and too quickly on big, complex ones. They don’t treat people right. They screw up.

As the senior team member (some prefer “seasoned” team member), it’s often hard to know when to step in. How do you ensure they make some mistakes but none that are too big? How long do you let them bark up the wrong tree?

Today, I had the honor of watching Scott, one senior generation member (who would NOT appreciate that title), hit the ball out of the park while guiding a successor.

Scott is the CEO and the oldest of a four-sibling ownership team. He is fast paced, smart and loves to engage in stimulating conversation. Scott, while effective at his job, does like folks to know how smart he is and does not suffer fools lightly. He can easily dominate a conversation. And over the 18 years he and his brothers have worked together, his brothers have taught themselves to defer to him. And why not? Scott is almost always right. His guidance has brought the business a lot of success.

However, Scott (and his brothers) have recognized that his natural style – which has been a strength of the business for a long time – will not position it for long-term success.

The successor in the business is Derek, Scott’s youngest brother by 15 years. Derek presented a feasibility study today to the Board that he and Scott developed about an acquisition target. Scott has traditionally done the majority of this kind of work and been the one to present and lead discussions.

Derek had worked very hard to be ready for the presentation. He’d done his homework, gotten Scott’s input and worked with an outside consultant on both the content of his report and his presentation style.

I have watched Scott in similar situations before. When he already understands the content of a report, Scott has a hard time staying patient. He fidgets. He sometimes adds a point but then takes the conversation off topic. Scott’s become aware of these tendencies and their effect on other’s confidence.

Today, Scott was a superstar – just like Derek was. He was relaxed. He listened well. When he thought Derek missed something, he asked a great question. The tone was truly curious. He deferred to Derek’s knowledge and really asked his opinion on the topic – it wasn’t a rhetorical question that he already knew the answer to. (Well, it didn’t sound rhetorical.)

Questions can be transformative and sometimes very hard for experts to ask effectively. Questions can make the asker vulnerable – someone might think you don’t know something when you ask a question. For the CEO who’s been charged to know everything for a very long time, vulnerability can be an extremely hard place to put yourself.

The next time you’re tempted to add your perspective, hold off until you can do it in the form of a question. A real question – not one designed to point out what you know. And get the tone right. Tone probably contributes 90% of the effectiveness of a question.

When you get it right, watch the successor bloom with confidence and initiative. What an honor to watch Scott and Derek become a case study in how the hardest work of succession can pay off.

When the Dead Pick Your Business Partner

Dartt 100x150
Barbara Dartt, DVM, MS

“I had always wanted to be a nurse,” explained Rachel. “After 15 years as a stay-at-home mom, I went back to school, earned my degree and then got a great job. I worked just one town over from where we live and where my husband Tom’s family business is located. Tom was at work all the time, managing the business and I was close by with a flexible work schedule. After 20 years of patience and work, our ideal plan had come together. And then Tom died.”

When Tom died, Rachel became a 50% partner with her mother-in-law, Rita. Rachel’s father-in-law had passed away many years ago and Rita had been an active business manager and owner for years. She’d recently begun to step away from day-to-day decision making. But now that Tom was gone, she moved back into her active role.

Tom has three siblings, two of whom had worked in the family business, on and off. Rachel had never worked in the business and was concerned with Rita’s intentions. Rachel and Tom’s dream had been for their (young adult) children to have an opportunity to work in and own the business. What did Rita want? “Rita won’t say what she wants right now. I think she’s afraid that whatever she says, it will make someone unhappy. It will be hard to get her to decide.”

Rachel chose to quit her job and come to work in the family business. She saw no other way to ensure that her voice was heard. And no other way to protect the future she and Tom had discussed for their children.

Tom passed away with life insurance and strong operating agreements for his entities – ones that protected owners and the businesses from liability. However, there was no buy-sell agreement. No future plan for business ownership. Today, the business is saddled with two reluctant owners.

Rachel is an owner by default. She’s chosen to exercise her owner’s voice by trying to manage the business, with no experience and very little knowledge about financials or operations. Rita is an owner by legacy. She had hoped to back away from management but also felt the only way to exercise control and “protect” the business was to be an active manager. And that’s about all they have in common.

A team functions best when they have common ground — a shared purpose. Logically, Rachel and Rita could work on that shared purpose by jointly answering the question, “Why do we want to be in business together?” Practically, they don’t have the depth of relationship, the understanding of their roles (as both owners and managers) or the trust to answer that question today.

So they are 50/50 owners, yoked together by fate. They are both working to overcome grief of Tom’s loss that came suddenly and too early. Owners, thrown together by the death of a key business figure, rather than owners who affirmatively chose to be in partnership together.

The obstacles are huge. And preventable.

This is obviously an extreme example. However, every family member who owns or manages a business can ask themselves two key questions:

  1. First, do you have “affirmative” and engaged owners? Affirmative owners are those who have chosen to be owners. Engaged owners are ones who are clear on the rights and responsibilities of ownership and have the knowledge and maturity to effectively make ownership decisions.
  2. Second, are the owners aligned around why they are in business together? This trait is fundamental to effective owner teams.

Talking about what ownership might look like after you are gone is not usually fun or easy. But it’s one of the best gifts you can give your family. And one of the best investments you can make in the future of your business.

Keeping Promises

JoAnne Norton
JoAnne Norton

On a long cross-country flight, I sat next to a woman who was involved in her family’s business and she shared her family’s fascinating story. Working with a consultant, her family had put a lot of time and effort into creating a family constitution as well as policies, procedures, and protocols. She and her husband, his sister and her husband, as well as the eight cousins—who would all one day be owners—got along famously and had great fun designing the documents.

Then sadness crossed her face as she confided, “As wonderful as our agreements were, and you should have seen the celebration we had when they were ratified, the documents were never taken seriously by the senior generation. The new policies were ignored, and the rest of us felt betrayed. We had spent so much time and money on the process, and now my husband doesn’t speak to his sister, and my children no longer get along with their cousins.”

As the plane descended through the clouds the woman said, “When you work with families like mine, please tell them how important it is to honor the agreements they create. It just takes one little snag to unravel the whole thing.” I assured her it wasn’t too late to fix the situation, and I urged her to reconnect with her family business consultant.  I told her she might want to suggest a meeting with the senior generation to discuss how best to handle the breach of trust that had taken place. Her family could also take a second look at the documents to be certain they weren’t too constricting, but most importantly, they needed to start communicating again.

As we walked toward the terminal together, she said she would take my advice if I would take hers: she would call her consultant if I would remind families to keep their promises to each other.  When we write family agreements, we have to be sure they are promises we can keep, so if promises have been broken, we need to keep the channels of communication open.

Splitting Roles

Chris Eckrich

We often talk about the many hats each person wears in a family business.  On the business side, one individual may hold the titles of Chairman and CEO, or CEO and COO.  On the family side, one person can serve as both the Family Council Chair and Education Committee Chair.  Individuals that take on leadership in multiple roles in this way are to be greatly appreciated, as with multiple leadership roles come multiple responsibilities.

A challenge develops over time when the “multiple hat”-wearer begins fusing the roles and sees all of the accepted responsibility as “just my job.”  His or her ability to differentiate between the two–or more–roles may become lost over time due to task familiarity.

As succession approaches and it’s time to transition these responsibilities to others, it can be a bit perplexing as to how the various roles should be split.  Without clarity around this question, when a shift is made to allow different individuals to take on the newly split roles, role confusion and frustration are likely to occur.

A quick example:  Arnold had occupied the position of CEO and Chairman.  As Arnold neared the age of transition (in his mid sixties), he determined that the business would be best served by keeping his role as Chairman, while his daughter Alyssa – who had demonstrated much competency over time and earned the position – assumed the role of CEO.  Over the many years of holding both the Chairman and CEO roles, Arnold became quite used to behaving in a certain way. With the new split in roles, he found himself stepping on Alyssa’s toes inadvertently which caused both confusion and conflict.  This caught Arnold by surprise – not a lot of planning went into the role division as they just figured they could work it out over time due to their close relationship.

New approach:  Arnold is suddenly struck by the lack of formality he has given to this situation.  He initiates an exercise whereby each role would be defined clearly in terms of its expectations, responsibilities and reporting relationships.  He includes Alyssa in this process and they work through areas of confusion by asking their Board members for input in the job descriptions they are working on.  Once they have agreed on their positions and reporting relationships, and how they will communicate about the business (frequency, content), the tensions seem to melt away.  This allows each of them to function independently and motivates Arnold to give Alyssa space to be the CEO while he focuses on being the Chairman.

Arnold’s lesson: Just because you are family does not mean you always have to act like it.  Splitting roles, whether they are family or business roles, requires forethought and advance planning.  By approaching the splitting of long standing roles as a professional exercise, Alyssa and Arnold enjoyed a much improved working relationship, which made life easier both at work and at home.

Next-Generation Leader Development: Entrepreneurship Across Generations

Steve Miller
Steve Miller

In my earlier blog post, I wrote about the importance of next-generation family leaders gaining challenging work experience with real responsibility inside or outside the family firm. How might a next-generation leader accomplish this within the family firm?  It turns out that preparing for leadership and ownership succession in a family firm presents a great opportunity for next-generation leaders to stretch themselves and help the family business at the same time.

Transition in ownership in a family business often creates the need to grow the business to support the financial needs of more than one generation of family owners. It also often comes at a time when the market is suggesting a time for strategic renewal. The term “transgenerational entrepreneurship” refers to the ability of a family enterprise to meet these challenges by creating new streams of value across many generations (Cruz, Nordqvist, Habbershon, Salvato, & Zellweger, 2006).  Next generation leaders may have entrepreneurial ideas for addressing new opportunities in the market that the senior generation does not see or understand. Taking responsibility for developing those ideas into new products, services, processes, or business lines can provide a way to stretch their wings and establish credibility in the family firm.

One of my former MBA students did exactly that. His father established and operated a highly successful catalog business in a niche market. My student researched opportunities for distribution of other products that were underrepresented in direct-to-consumer marketing and identified a highly fragmented market that seemed ideal for direct marketing. He developed a business plan that utilized existing distribution and sales infrastructure for his new line of products and raised the necessary capital himself.

Not only has his “company within a company” been successful in its own right, but he also convinced his father that investing in developing a robust online sales platform in addition to the traditional catalog was necessary to keep both businesses competitive. He has gained valuable experience, established himself as a respected leader, and created a new source of growth for the family business. His father now sees him as a capable successor for leadership of the entire enterprise.

References
Cruz, C., Nordqvist, M., Habbershon, T., Salvato, C., & Zellweger, T. 2006. “A conceptual model of transgenerational entrepreneurship in family influenced firms,” International Family Enterprise Research Academy.

Next-Generation Leader Development: Inside or Outside Experience?

Steve Miller
Steve Miller

Laura is the second-generation CEO of a successful beverage company started by her father 25 years ago. She exudes a contagious enthusiasm for the business and articulates a clear vision for growing the family firm. When her father began thinking about leadership succession, the employees asked him to recruit Laura as their next CEO, and they love working for her.

Joe is a third-generation senior leader in a large manufacturing firm founded by his grandfather nearly 75 years ago. Joe is burned out and seems weighed down by the burden of overseeing the family enterprise. Employees don’t want to work for Joe, and one division of the family enterprise recently failed under his leadership.

Both Laura and Joe were educated at top universities, got work experience outside the family business, and are highly intelligent – three characteristics most often mentioned in the family business literature as important to next-generation leader success.  So what’s the difference between Laura and Joe?

A recent article in Harvard Business Review suggests that how next-generation leaders are developed has an important impact on their success in the family firm (Fernández-Aráoz, Iqbal, & Ritter, 2015). The interviews on which that article was based revealed that the best family firms execute a thoughtful development plan for future leaders that includes real job responsibilities at varying levels of responsibility. Where that experience is gained – inside or outside the family business – did not seem to be a key factor.

One CEO indicated that his family firm no longer requires next-generation leaders to go outside the family business to establish a track record, but rather encourages them to work for the family business from the start. This finding is consistent with my own recent research of 100 next-generation family leaders which showed no statistically significant relationship between experience outside the family business and next-generation leadership effectiveness. My study showed that the more important factor was having experiences at work that challenged and stretched the developing next-generation leader.

A closer look at Laura and Joe supports this conclusion. Laura’s outside experience was gained in a job that required her to grow a business line for which she was responsible. She had to learn a wide variety of leadership skills including planning, influencing others, and adapting to changing market conditions. Joe, on the other hand, received superb training in a technical skill important to his family business, but in a position without real leadership responsibilities.

Here at The Family Business Consulting Group, we think gaining outside experience is often the right course for many next-generation leaders. It can increase the likelihood that they will receive objective feedback on their performance and provides an opportunity for them to prove themselves in a setting where their family name is not an issue. But in the right circumstances, they can also develop successfully working inside the family firm.  It is not so much where the experience is gained, but rather the nature of the experience that makes the real difference.

References
Fernández-Aráoz, C., Iqbal, S., & Ritter, J. 2015. “Leadership lessons from great family businesses.” Harvard Business Review (April 2015).

The Sixth Generation at National Geographic

Craig E. Aronoff
Craig Aronoff

The National Geographic Society with its famed National Geographic Magazine is a not-for-profit entity dating to 1888. Among its founders and first president was Gardiner Greene Hubbard, an attorney and financier.  He helped to fund Alexander Graham Bell’s research that led Bell to being awarded the patent on the telephone in 1876. The next year, Bell married Hubbard’s daughter and after his father-in-law’s death, succeeded him as National Geographic Society president.

Gilbert Hovey Grosvenor became the Society’s first employee in 1899, and the next year, married the boss’s daughter.  He was editor of the magazine for 51 years and served the Society as president and then chairman of the board.  His son, Melville Bell Grosvenor, joined the family business in 1924, also served as president and editor, and in 1967 succeeded his father as board chair.  His son, Gilbert Melville Grosvenor, joined the magazine in 1954, became editor in 1970, president in 1980 and was named chairman emeritus in 2010. He retired from the board in 2014 after 60 years of service.

His daughter, Alexandra Grosvenor Eller, MD, joined the National Geographic Board in 2009 and continues family stewardship of this important institution into its sixth generation.

An organization need not be a business to benefit from a family’s multigenerational nurturing commitment. And profit from the good done by the organization need not be in the form of dollars to the family who founded and developed the institution.

An imperfect gift

Chris Eckrich
Chris Eckrich

Over the years in which I have consulted with families, I have observed an important, and encouraging, pattern in numerous families whereby the senior generation – despite substantial tensions and challenges in working together – offers the junior generation an opportunity to have relationships unspoiled by the challenges of their parents.

It goes something like this…

The senior generation, often a sibling generation, struggles with managing the emotional aspects of being in a family business together. These struggles are not uncommon, and often simply due to the pressures of being a family together, working with their parents and facing the stresses of the day. Over time, they become overly sensitive to comments or actions that were not intended to cause pain but do nonetheless.

It would be typical that these frustrations would turn into toxicity, which is then shared with their children – the next generation. But in many families something beautiful happens. The senior generation members, recognizing the value of their collective children building supportive and nurturing relationships, suppress their own frustrations and insulate the next generation from daily dramas, allowing the junior generation emotional space to become friends and build relationships. The result is a group of cousins who enjoy their relationships and their time together, often independent of the parents’ participation. In these cases, the collective sense of family created among the cousin group is a powerful force.

Being in a family is sometimes messy and intense. As human beings, we are not perfect.  Many of us have emotional nerve endings close to the surface. We get hurt. We want to attribute the source of pain and frequently look outward for causes. In the worst of cases, we blame others for the entire balance of the messy relationship and are blind to our own part in the drama. In our frustration, we may even disparage our family members to our children, and even to their children.  This creates division within the family.

When the individuals within a generation commit to nurturing the junior generation despite their own pains and the complications associated with the complexities of being in an enterprising family, a great gift is truly given.

Collected resources: Family councils

Editor’s note: A frequent question we hear from business families regarding family governance is: “Where do we start?” The following is a selection of articles and other resources that can be helpful in thinking about the role family governance might play in your family. 

As family business advisors, we have been recommending to our clients that they form family councils for decades. In fact, councils are often considered the sine qua non for all families who own businesses together, particularly if the business has been around for more than a generation. But who really needs a family council, and what exactly is one?Read more…

Responsibilities of Family Councils by John L. Ward, Ph.D.
This comprehensive list outlines the obligations a well-defined council provides to the family firm. Read more…

A Renegotiation of Relationships by Chris Eckrich, Ph.D. and Steve McClure, Ph.D.
The “Hills” family asks: Are we ready to commit to changing our rules of engagement with one another? Read more…


Family Council HandbookBook: The Family Council Handbook
by Chris Eckrich, Ph.D. and Steve McClure, Ph.D.
An invaluable owner’s manual for family councils that includes beneficial models, strategies and real-life examples. Learn more…

Webinar: Providing Structure for Family Business Continuity
During this on-demand webinar, panelists Chris Eckrich, Ph.D., Steve McClure, Ph.D. and Amy Schuman explain how to use the family council to strengthen the family and the business. Learn more…


Other Complimentary Resources

These articles originally appeared in The Family Business Advisor, a monthly email newsletter published by The Family Business Consulting Group. To sign up for your free subscription, please complete this form. We also have a vast selection of online articles available at your fingertips!