JOHNSON ON DISTRIBUTION MANAGEMENT: The Family Business - It's A Dream
It’s a dream. A dream I personally lived. Become an entrepreneur. Start your own company, be your own boss and pass the company on to the next generation. Unfortunately, the odds are against you. The truth is, the majority of family-held businesses don’t make it past the first generation. I sold my business before my kids had a chance to express their disinterest in it.
Some businesses make it from generation to generation because the founder is intent on creating a family legacy or the next generation is intent on carrying on that legacy. Shareholder agreements are commonplace in those companies that do make it through generations. Buy-sell agreements which dictate who, how, when and to whom stock can be sold become a family protection umbrella that ensures that stock remains within the family and the company.
Second- or third-generation companies that fail to survive are generally run by heirs that just don’t have the same passion and interest in the business as their predecessors. The company is often run into the ground due to lack of skill, interest and commitment.
Another issue that can lead to failure in the second and third generation is sibling rivalry. When several heirs all work in the business, it is common for conflict and resentment to exist. Sometimes this conflict is so open that employees become very uncomfortable, unproductive and may begin taking sides.
Unless a company has well-thought-out succession plans, a family doctrine and even a code of conduct, problems are almost guaranteed. That does not mean that it is impossible to succeed in business with siblings sharing executive authority. However, the odds are stacked against it.
Many, if not all, family members working in the business have feelings of entitlement to some degree. This is generally true of at least one, if not all, of the siblings. Choosing the next president becomes even more difficult if the children have used their name as a title instead of the actual title of the job function they performed and the position they hold in the company. (This is often unintentional and some kids don’t even realize it.) This difficulty increases exponentially if none of the kids has demonstrated a high level of competence, respect for all employees, leadership skills that pattern the servant style and at least some promise of potential to fill the president’s shoes.
Although the majority of parents would prefer that their children take over the business and carry on the family legacy, this is not always the best option available. I know it is difficult for any parent to admit that his or her child may not possess the skill set necessary to take over as president of the company. However, the reality is, that situation actually does exist in many family businesses.
Family-owned/privately held organizations in wholesale distribution, both small and large, with issues involving succession, family preparation and second- and third-generation leadership, have been subjected to the evolution of leadership. These organizations are often founded by an aggressive, highly talented entrepreneur. The principles of leadership employed by the founder that helped build the organization’s success in the past may not maintain that success through generations of ownership. The formation of a board with several outside directors can help ownership cross the transitional divide that often accompanies generational succession.
The board can also play an important role when it comes to dealing with personal family issues between siblings that become an issue at the office. So, even if you don’t have family problems in your business, get a board. It might be one of the best decisions you will ever make.