The process of transitioning a family business from one generation to the next can present an opportunity for renewed growth as new ideas and enthusiasm are introduced to the business.
Challenges and tensions in transition
However, it can also be a significant source of tension, both within the family and the business, as the succeeding generation seeks to establish themselves whilst navigating potential conflicts and challenges.
The ability to successfully navigate such a transition will depend on the ability of key stakeholders to identify the needs of the family business according to its current stage in the family business lifecycle, as well as the needs and personalities of the family members and other stakeholders. This will inevitably differ from business to business. However, some general themes can be observed.
The role of the successor
A successor of an established family business will usually be concerned with ensuring that the business stays the course and continues on an upward trajectory under their stewardship (or at the very least, that they do not hand the business to the next generation in a worse state that it was received). They will often see their role as more of a custodian of the family business and of their predecessor's legacy, rather than as a disruptor of the status quo, at least initially.
In those circumstances, ensuring that the successor has access to reliable support will be key to ensuring the success of the family business, both for the benefit of its current stakeholders and future generations. This support may be provided by their predecessor, or even by incumbent senior managers, in the form of informal advice and guidance or may be more formalised (for example, through a committee consisting of family members and external advisers). New non-family management or expertise may also be introduced at an operational level to address gaps in the successor's skill set.
Inheriting a business under challenging circumstances
In contrast, there are those who will inherit in more challenging circumstances. These challenges could result from the relative immaturity of the business, the sudden death or illness of its predecessor (potentially combined with the fallout this occasionally brings between family members), or where the transition occurs during an economic downturn or amidst a specific crisis for the business, such as the loss of key employees or customers.
Unlike the custodian, here the successor cannot afford to be complacent. However, the need for the right kind of support is just as vital. The successor may be required to pursue ideas or solutions which were previously considered unacceptable, or which prove controversial, to enable the business to survive and grow under their direction.
Addressing disagreements
These disagreements may be resolved through informal discussion facilitated by other family members and trusted intermediaries, rather than through formalised procedures. However, if tensions cannot be resolved – or the disagreement relates to a more existential matter (such as the identity of the 'rightful' successor) – then it may be necessary to explore more radical options to protect the business for the benefit of all its stakeholders.
Successors with a different vision
Finally, there are those cases where the successor has by all accounts inherited a successful family business, but they do not share the vision of their predecessor or other family members. The extent to which the successor departs from their predecessor's vision can vary significantly, as can the risks associated with doing so.
For some, the extent of the departure from their predecessor's vision may be relatively modest. It may be driven by a desire to modernise certain processes or practices, to introduce new skills or expand into new areas, or to update certain aspects of its governance.
The risks of radical change
For others, the extent of the change may be more extensive and therefore more difficult to reconcile. Here the potential risks are as severe as they come: a wrong move could lead to the loss of the family business and therefore the family's wealth.