Grooming the Successor in a Family Business

The majority of businesses in most countries are classified as family businesses. A family business is any business is which a majority of the ownership or control rests within a family. It might be that just one member works in the business while others serve as “silent” owners or directors.

Succession in a family business is the process of transferring leadership to another family member. It is not a single event but rather a planned series of actions that prepares the future owner to take over the responsibilities of heading the business.

Succession usually begins when the children of the owners learn about the enterprise from their parents. They “grow up” with the business and subconsciously learn much from the behavior of their parents. They may want to run the business someday or they may not.

Eventually, if one or more members of the next generation have an interest in taking over the enterprise, the process of selection takes place. Selection is the process of choosing who will be the firm’s leader when the owner retires or steps down. It can be done on the basis of age, qualifications, abilities and interest. It is a sensitive and delicate process.

Once the identity of the successor has been determined steps must be taken to prepare that person for control of the enterprise. It’s possible to transfer this control from one family member to another without creating problems for the business if sufficient forward planning has been done.

Training or educating the successor can be a challenge. The younger person may need extensive training and/or education to succeed in the position and a parent may not be suitable as the source of this knowledge. It is an issue that demands in-depth consideration to work properly.

Sometimes an alternative trainer may have to be found within or outside the firm. This will be a person who is committed to the task and action oriented. This person will need the support of an educational and training program that is results oriented and designed to produce a well-trained beneficiary.

There is a training variant of the management by objectives (MBO) concept that’s called the training by objectives (TBO) concept. TBO can be an effective method for providing the training and the evaluation of successors within an objective and goal-driven framework.

In the TBO process, both the trainer and the trainee work together to define what the trainee will do, what the timing of each phase of the action will be, and how the evaluation process will take place.

This system places the successor in a responsible position in the business that has well-delineated objectives. It also provides steps of increasing responsibility as training and business goals are met and more rigorous goals are established. This enables the successor to enter the firm in a well-defined position with a specific job description.

The owner’s experience in the business will enable a determination of which criteria are necessary for good training. Usually, an owner will want to assess a successor in the areas of decision-making, leadership, risk management, ability to deal with people, and how they handle stress.

The successor must also learn the culture of the firm. They are not there to impose their style on the organization; they are there to learn the way that “we do things here”. If cultural change is required it will be under the auspices of the new owner and not during the training period.

While undergoing training the successors should be also be introduced into the owner’s “outside” network of contacts. This can include the firm’s customers, bankers, accountants, lawyers and other business associates. This will give them time to get to know the successor and perhaps create some opportunities for the successor to spend time in those other businesses.

Outside formal education may also be needed for the successor to manage the business. Courses in business management, accounting, law and other topics related to the owner’s role are often beneficial. This highlights the need for long-term planning well before the owner intends to retire or leave the business

Whereas families are emotional and determined by birth, businesses are essentially unemotional and conducted within a framework of contracts and legislation. To function effectively at the head of a family business, the designated family member will have to put aside many of the emotional aspects of the family and focus on the business.

For this reason, their education and training must be a good fit with the requirements of the position. Grooming the successor in a family business is something that takes careful planning if it is to have a chance of success.

Copyright 2005, RAN ONE Inc. All rights reserved. Reprinted with permission from www.ranone.com