The 3 biggest problems facing family businesses (and how to solve them)

From accusations of nepotism to succession planning, managing family businesses requires a particular set of skills.

by Adam Gale
Last Updated: 29 Jun 2016

It’s easy to overlook family businesses. Slow, steady growth just isn't as sexy as the flashy liquidity events and breath-bating quarterly results associated with listed companies. Yet some of the world’s most powerful and enduring businesses are still controlled by the families that founded them: Walmart, Samsung, Nike and VW all spring to mind.

Family businesses tend to be financially conservative (for some of them, leverage is a town in Alaska...), but they are often capable of reacting more quickly than corporate bureaucracies and have the advantage of a truly long-term view. To put it in the perspective, it’s not unheard of for them to have 100 year plans - enough to make a Silicon Valley agility-junkie cough up his chia seed and wheatgerm breakfast.

Yet anyone who’s seen Dallas and/or Dynasty will know family businesses have their share of problems too, from nepotism to feuding and succession crises. To find out how to handle these, I caught up with Andrew Keyt, author of Myths and Mortals: Family Business Leadership and Succession Planning.

(Aside from working with hundreds of family businesses over the years, Keyt has a rather personal experience of them too: to his great surprise, he inherited a business on his father’s deathbed, at the age of 22, despite having been ‘insulated’ from its operations beforehand. To complicate matters further, his brothers weren’t given ownership, only a share in the profits.)

Successful Succession 

We’ve all seen the Godfather, but succession planning is best when it’s not a one-off transfer of power from one generation to the next. The key is to think carefully about what you really want from a leader well before the issue of replacing the current CEO comes up.

‘Leadership succession should be centred around what kind of leader the family and the company need to sustain and grow the business,’ says Keyt. Once you’ve decided who it will be, set a date for the handover – and make sure it’s not 2021.

‘People will have perceptions that they’re either in the in group or out group based on who the next leader will be. If you say it’s going to be a five-year transition and all the people in the out group leave, that could be a negative for the new leader.’

5 lessons in smooth succession planning

If your search for the next CEO takes you outside the family or the organisation, be extra careful with recruitment, Keyt adds. ‘The most important thing about hiring a non-family member into the CEO role is making sure they have a shared sense of values and objectives.’

If in doubt, try setting up a culture committee of employees you think exemplify your values, to help with the vetting process.

Nobbling nepotism

The decades long reign of a patriarch or matriarch can make it tough for the next generation to establish credibility of their own, something Keyt calls the ‘successors’ curse’.

‘Your successes are never your own. "You had a silver spoon in your mouth from the moment you were born." Every successor has had to deal with that.’

It’s essential therefore to become credible to yourself and to others – whether that’s parents or non-family employees. Indeed, some families require outside work experience as a condition of employment, to prove your worth and get exposure to different ways of thinking.

How to nip nepotism in the bud

‘Going straight into the family business isn’t necessarily a death knell either, if you have the passion and are willing to earn credibility. It’s just a little bit harder because you don’t have any external verification of your skill sets,’ adds Keyt.

It’s also doubly important to make sure any notions of nepotism remain just that – so no more complaining to the chief executive (i.e. mum) over dinner that your boss just isn’t listening to your fantastic ideas to spruce up the accounts department.

Watch out for overcompensation too, where bosses go too hard on the next generation in the interests of appearing fair. A good way round both problems is setting up objective and transparent measures to evaluate family members’ performance, possibly even a separate committee of the board.

Family unity

‘Family businesses often don’t fail for business reasons, they fail for family reasons. The family can’t get along, they aren’t aligned to the same goals and priorities, and they’re not communicating about them,’ cautions Keyt.

It’s critical to separate the roles of managers, owners and family members. ‘They’re different things. As family members we’re supposed to be equal. I’m supposed to love, care for and protect you. The business is a meritocracy. I’m supposed to hold you accountable for your successes and failures. It’s not always easy to do both,’ Keyt says.

He recommends a focus on processes and governance to unmuddy the waters. ‘You want a board of directors that helps govern the business and hold management accountable, and family meetings where everyone stays aligned about what you’re working on.’

Remembering to keep these boundaries intact is doubly important, when you consider that it’s not only your business at stake, but your family relationships. Some have rules forbidding shop talk at dinnertime or on holidays. If nothing else, keep things in perspective – the business exists for the family, not the other way round. 


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