As anybody who watches the “Twilight” movies knows, vampires live forever. In reality, of course, the actors portraying the characters are as mortal as anyone. And the enterprises led by family business executives are just as mortal. In fact, most family businesses last exactly as long as their founders. Two-thirds, by actual count, fail to survive into the next generation.
Family businesses may not live forever, but the longest-lived actively operating businesses on the planet are family firms. Oldest of all is Houshi, a mountain spa and inn a few hours outside Tokyo that was founded in 717. So what separates a firm like Houshi, now in its 46th generation of family ownership, from one-generation family firms?
The answer: Succession. To survive, a family business must have leadership and governance in addition to a desirable product. This only happens consistently when succession is wisely and carefully managed, which brings up another myth.
There seems to be a prevailing belief among family business leaders that business ability is genetically transferred. This is reflected in the way that scions of family businesses are frequently promoted to top jobs without preparation and in some cases, even desire.
In fact, having the right last name is not enough to guarantee success. Leadership ability is largely acquired. It’s up to the current generation of leaders to make sure that later generations acquire that ability. It’s not enough to be the son or daughter of a successful family business leader. Next-generation leaders are made, not born.
Effective succession planning involves selecting, cultivating, preparing, and transitioning new leaders into place, and each stage of the process involves challenges. However, before beginning to look at candidates, the business leader must look within. No succession can take place unless, and until, current leadership is ready to relinquish control.
Not infrequently, family business leaders act as though they believe that they will never die, or that it’s best for the enterprise if they lead it until the moment they do. Neither belief is correct, of course. It is far better for an enterprise if leaders recognize reality years before they become unable or unwilling to lead, and begin preparing themselves, the enterprise and the successors for the challenge ahead.
Yet another myth of family business is that the oldest son of the founder is the best candidate to lead the firm. Actually, the best candidate is the son, daughter, other family member or, sometimes, outsider, with the appropriate skills, experience and passion. Identifying this candidate requires careful observation and dispassionate analysis. Rigorous adherence to the principle of primogeniture has no place in well-done succession. This is best solved with input by competent outside professionals.
Once selected or at least winnowed down to a few candidates, the next generation of leaders must be formally educated, introduced to the particular business practices, steeped in family values and, ideally, gain outside work experience. The final stage, transition, requires no less careful attention. Employees, customers, suppliers and other family members must be sold on the candidate. And the ultimate step, transferring leadership, has to be performed without hesitation by those relinquishing power.
Succession is rarely easy. But done right, it can drive a stake through some of the most persistent myths of family business. Ideally, it will allow your firm a shot at immortality.
Authored by James Olan Hutcheson & Elle Hansen