Factors influencing family business succession
Most family business owners like the idea of succession and building a lasting legacy. But more often than not, they are totally unaware of the amount of time, energy and effort that is required to do this well.
When thinking of succession, family businesses will often focus on the more tangible areas like shareholding, sharing of money, availability of willing Next Generation members to take over. These are all important, however, there are a number of other intangible factors that strongly influence family business succession that we also need to address. These include:
- A clear vision
- Clear family values
- A sense of purpose in what the business and the family is doing: the ‘Why’ we’re doing this
- Thoroughly worked through family agreements
A Clear Vision
Let’s start with the vision. Frankly, most family businesses begin because someone had a great idea and roped in a family member to help them and it went from there. It’s only later that a real lasting vision starts to evolve. This vision may be about the business itself or what the family does with the business and proceeds that result. Regardless, there needs to be a shared and real sense of vision and meaning around what the family and the business is doing and, most importantly wanting to do into the future. This has to be more than just giving money to future generations. There are a number of multi-generational family businesses in New Zealand and Australia that nurture a very strong sense of their vision and pass that on to the next generations. This provides the family with a ‘glue’ that binds them together and gives them a common goal to work towards that is greater than any one individual in the family and, provides a sense of meaning and unity for the family. Farming families tend to do this extremely well.
In terms of family values there has to be an agreement amongst the family that there is something valuable to build, protect and develop. This shared set of values ensures there is something to fight for when times are tough, a sense of pride in belonging to something that is bigger than themselves and a preparedness to forgive each other when the disagreements and arguments start. These factors are particularly important when Generation 2 (the Sibling Group) moves to Generation 3 (the Cousin Group).
To achieve this, it takes active work; it cannot be left to just passively happen.
At Family Business Central we spend a lot of time getting families to think about and discuss their shared values. This is not a quick or simple process and nor should it be.
The reality is that a family’s values are inherent in all family busineses, from both what they do and don’t do and in how they treat others. These values are just usually not directly talked about openly. These are not fluffy, feel good things, values are based on behaviours and beliefs that we demonstrate and guide us in the decisions we all make. A quick way to find out someone’s values is to look at how people behave in a crisis – this gives you some real indications.
Of course many values are aspirational – we don’t necessarily live by them all the time. In my family, there is a value of honesty and it’s important to us. However, we all struggle at times to be totally honest but when it is really needed, that value does come to the fore.
Values give a family the rules, if you like, around how to make important decisions both for the family and the business and how to treat each other as well as others. Great family businesses will often ask “how does this fit with our values?”. When discussing important topics, keeping the family’s values alive and relevant helps families get through tough periods and difficult decisions.
A Shared Purpose
Developing a shared purpose, beyond just the financial legacy of the family business, is about creating a deeper sense of heritage and culture within the family. In essence this purpose is about answering the questions: ‘What is it all about?’ and ‘Why are we bothering?’
Purpose gives a sense of belonging to something bigger and really important. A sense of pride in being part of something wonderful. While most family business succession matters tend to focus on who is going to take over the leadership, or how ownership is going to be transferred, building a sense of heritage and culture, (i.e. purpose), is equally important.
Purpose is the glue that holds a family together. This is particularly important for future generations – they often have no idea how hard the founders worked, the risks these founders took or what they had to put up with in order to build the business. A sense of purpose is incredibly important for family members to keep in mind when reflecting on what it’s all about. The family business that loses sight of its purpose is really just another company and at risk of becoming the old cliché of a family business that goes from shirt sleeves to shirt sleeves in three generations.
Creating A Family Agreement
Any agreements that a family creates have to be relevant to all the family. This is why simply cutting and pasting a family business constitution or family business charter is both a waste of time and likely to cause further issues in the future. We strongly advocate and believe that the whole family has to be involved in building and writing the documents and agreements that form the family business constituition or charter.
Even when the family is fully involved, once a family business charter is set up there needs to be an agreement that at least one person in the family will be the champion of the process. As you might imagine, this can take a bit of work developing the momentum to get the processes up and running but once it is in place, the benefits to the whole family, especially in challenging times, is huge.
The Essence of a Family Business
A family business is way more than merely profit. By definition, you are combining love and money. When this is done right it is a magical combination. So, if you want a really good succession process, that will take your business forward for many decades and generations, it is important to build a family that has vision, clear values and a purpose as well as solid agreements that everyone subscribes to.
Combine the above steps with the vision and values that your family business aspires to and your succession plans have a real and solid foundation. This strength will take future generations forward by providing structure and meaning when the discussions get tough, conflict rises and disagreements develop. Ultimately, you inherently know what a family legacy means to you and why it is vitally important you strive for good outcomes.
If you’re unsure about the succession of your family business or would like to talk to a trusted, experienced family business adviser, feel free to contact us for a no-obligation chat.