Article: Intergenerational Transitions in the Family Business

Intergenerational transitions in the family business

The major problem confronting family-controlled businesses is the ability to survive into succeeding generations

Too often the succession process is so infected with family conflict that the family business is destroyed by the succession participants. Therefore, deciding who shall run the business transcends all other potential conflicts.

It is a matter of having a successor (the younger generation) and owner (the older generation) whose management behaviors complement each other so that the business can have longevity and continuity. Too often the oldest son is selected to run the business regardless of his management style and qualifications. What is best for the business is often ignored. Other potential successors become frustrated, resentful and angry and often leave the business for presumed greener pastures.

In the past a "things to do" list has been the accepted educational tool used to teach families how to have a successful succession. For example, families were advised:

to give successors "real" jobs;
to require successors to work elsewhere (outside the company) for at least two years;
to have successors managed, taught, and evaluated by someone other than the owner;
to have a "real" board or advisory group help the owner make the choice of a successor;
not to trap successors with excessive pay and perks; and
to design and put a succession plan in place

This "things to do" list however, left much to be desired. It completely ignored the personalities and behaviors of the succession participants. This prescriptive list would only work if there were other factors in place before the above actions were applied.

Current research and practice have told us that viable successions could occur when the parties:

have complementary management personalities or are willing to go through the pain of trying to complement each other;
have insight into themselves, i.e., understand their own abilities, strengths, weaknesses, intellect, etc.
understand each other, i.e., understand the other’s abilities, strengths, weaknesses, intellect, motivations, etc.; and
understand something about organizational theory, i.e., what a business relationship is all about and how to separate business from family.

The above items address three important points:

First, successful transitions only occur when the behavioral climate is "right" and when the "right" behavioral climate is supported by the prescriptive method addressed earlier.

Second, successful transitions occur when there is a "right" fit between the owner and successor.

Third, successful transitions occur when owners and successors who do not fit are willing to go through the pain of trying to make a fit.

Based in Mesa, Arizona, and serving closely held businesses in the East Valley, the Phoenix area and throughout Arizona, Schmidt Westergard & Company, PLLC, is an independent full-service tax, audit, accounting and business advisory firm focusing on the middle market.