We all know or have experienced the difficulty of transitioning a family business from one generation to the next. It is no easy feat at the best of times. Recent research within the neurosciences may provide some deeper insight and appreciation for why family firm transitions are so difficult.
Social neuroscience researchers believe our brain operates on five primary principles: Status, Certainty, Autonomy, Relatedness and Fairness (David Rock, 2011). When we consider what occurs in family business transitions, it is very likely that most or all of these operating principles are threatened during a transition process.
First, let’s consider status. A founder’s status (i.e., his/her importance relative to others) in a family business succession changes during a transition process. In fact, a founder’s status may be reduced significantly as he steps away from the CEO role and the next generation leaders step in. Depending on the status needs of the founder and what he has planned next for himself, this change in status may cause tremendous personal anxiety and stress. A founder with a strong status drive may be very reluctant to give up his status within the business especially if there is not a new role or activity “in waiting” that has the same or higher status associated with it (e.g., chairman role).
Our brain’s second operating principle is certainty. Again, during periods of transition within a family firm, there is often a significant amount of uncertainty both with the incumbent generation and the next generation. Uncertainty stems from the “not knowing” in the transition process and is different for the serving generation than it is for the next generation. For example, uncertainty for the incumbent generation includes things like: not knowing what life looks like post-CEO role for the founder, not knowing if the next generation can “handle” operating the business, not knowing how to exit the business and maintain the same lifestyle, and so on. Whereas uncertainty in the succeeding generation stems from things like not knowing who will be the next CEO (because no one is talking about it), not knowing when the founder will retire (because every year he says he will retire within the “next five years”), not knowing how to liquidate shares if desired, and so on. The threat of uncertainty triggers a threat response in our brains causing us to react negatively or even delay the transition process.
A third operating principle which is triggered during family business transition is autonomy (i.e., the extent to which we have choice). During family business leadership succession, collaboration and greater consensus is often required to build buy-in and engagement into the future direction and plan. The founder may feel frustrated because she is losing her ability to make decisions independently during a transition process. Transition requires the involvement of more family members to make the transition as smooth and effective as possible. The founder may not like the direction that the successors are headed but is no longer able to dictate the solution. Our need for autonomy gets triggered in the transition process causing a threat response when our independence is compromised.
The fourth operating principle, relatedness, may also get threatened or triggered during family business transitions. Relatedness involves feeling a sense of safety and belonging with others. During a family business transition, a founder’s feeling of belonging may shift because she is no longer part of the team. She needs to find a new group to relate to or determine how to relate differently to the team in the business as she is no longer the leader per se. Relatedness can also be threatened for the next generation because they may need to form new relationships with a non-family CEO or with each other because the team dynamic shifts when the founder steps away and a new leader steps in.
The final operating principle is fairness (i.e., the perception of impartial or rational decisions and exchanges between people). During a transition process – especially if shifting from a founder stage of ownership structure to a sibling partnership or cousin consortium – fairness issues can develop quickly. Anxiety and concern related to fairness issues include the following: Am I being treated fairly as a daughter or son? How do I treat my kids fairly when they all have different capabilities? Why is it that I work harder than anyone else but I don’t get more shares? and so on. Our brain has a natural sense of fairness (although what seems fair varies from family member to family member) and thus we need to believe there is equity associated with where we end up. Again, anxiety, frustration and a feeling of injustice can result when the brain’s fairness principle seems to be violated.
Check out the FBCG blog on Thursday for how families in business can mitigate threats and maximize success in the transition process.