Passing on the family business to the up-and-coming generation is one of the greatest joys when a founding businessowner steps down. But when the next generation steps in and takes over, this new leadership tends to make some big mistakes, despite the fact that things are staying in the family. What are these big mistakes and how can they be avoided?
- Lack of leadership and strategy: Most of the founders of successful family businesses are overly conservative, thus not being able to have a clear vision for their business and are weak in knowing how to manage funds both to sustain a business and to make it grow from its core purpose. Long term vision and strategy are key to a family business’s continuity.
- Excessive dependence on founders: 2nd generation leaders often lack the hunger and drive for success that the first-generation founder had in abundance. 2nd generation leaders sometimes have less self-initiative. Thus, when problems arise, rather than looking to solve them, they look to their first-generation leaders for answers and solutions.
- Secretive style of management: Lack of information sharing with core management team, lack of clearly conveying what the goal and objectives are, believing that everyone is on a “need to know” basis. Most often the lack of transparency is due to the fact that the 2nd generation leaders don’t really know how to establish a sound business plan to take the business into the future. Their uncertainty does not allow for transparency and information sharing. This makes planning and implementing difficult, leaving their team and employees with little to no direction and without a clear blueprint to proceed.
- Friction due to lack of succession planning: A succession plan establishes an orderly transfer of the management and ownership of the business to the 2nd generation avoiding the liquidation of the business. It considers tax treatment and other anticipated expenses and allows the incorporation of the family’s non-tax objectives. Without a clear succession plan, the 2nd generation may compete for power positions and engage in power struggles to win the most important roles within the business, even if they are not qualified. These power struggles can cause a volatile work environment leaving team members and employees unmotivated to do their best and give their best at work.
- ‘Eldest first rule’ doesn’t have to apply: The best succession plans are based on a cool-headed appraisal of the different strengths and preferences of the next generation of potential leaders. That might mean favoring younger siblings over elder siblings, skipping a generation or going outside the family. What is important to remember is to safeguard the business and keep the legacy going. It is not a question of inheritance but competence. A meritocracy approach needs to be applied. And you need to be open to an outsider (non- family) candidate to be the best person to take the business into the future.
Angela Civitella is an executive in a family business, a business leadership coach and the founder of Intinde.
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