• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 6/27/2013

The Risks Leaders Pose to the Family Business 

Risk leaders pose
Family business founders are largely lauded for starting out with little, building great enterprises from the ground up, and leaving legacies from which the next generation benefits. But there can be a flip side – that grit and determination which stimulates a business’s success can also be its undoing.

Here are some of the ways in which a leader can risk the very future of the business they created…

Staying at the top too long

Whilst the average tenure for a non-family business CEO is six years, for family businesses this is 25 years. The upside is stability; the downside, stagnation. In a stagnant business environment, new ideas cannot flourish (in fact, they may be actively discouraged) and new opportunities are often ignored.

Demotivation and frustration sets in, particularly amongst intelligent and ambitious younger members of the family, when they realise that opportunities for personal and career growth are limited. In worst case scenarios, where a leader is reluctant to pass on the baton, these bright young stars will quickly move on, leaving a dearth of talent in the family gene pool behind.

Not dealing with family disputes effectively

Every business has its politics, but family businesses get a double helping – both work-related and family politics. When family politics spills over into the workplace, it can impact on business decisions, with disastrous consequences.

History is littered with stories of family feuds which have sunk family businesses – don’t let it happen to yours. Have firm conflict resolution procedures in place, including bringing in neutral outside mediators, if needs be.

Not making succession plans

The failure of family businesses can nearly always be traced back to the lack of succession planning. For a business to remain viable once the founder has left the building, due attention must be given to:

  • Leadership succession – who will be given the responsibility of defining the business direction and leading the team?
  • Management succession – who is going to take on the day-to-day chores involved with managing the business?
  • Ownership succession – who will actually be named as owner(s) of the business, for example, will the business pass to the spouse, the child(ren) or both?

Not doing replacement planning

Illness, injury, and incapacity can happen to the best of us, particularly as we grow older. When Steve Jobs fell ill with cancer, he was forced to step back from his leadership role at Apple. Fortunately, there was an appropriately qualified and experienced replacement to step up to the plate.

Realising that we’re fallible beings and that anything can happen is not only sensible, but smart. In the event that you have to take an extended leave from the company, replacement planning will ensure that business proceeds smoothly until your return or until permanent succession plans kick in.

Forcing children to join the business

Many family business owners dream of their children (and grandchildren) one day joining the business. But what happens when a child (or grandchild) shows no interest and wishes to pursue a different career path? Then there’s another all-too-common scenario – passing over another child who shows promise, or being oblivious to his or her interests in the business.

Rather than dictate which roles will go to whom, encourage the younger generations to get involved in family business activities and allow them the space to find their own particular nîches and fortés. Whilst you foster their sense of involvement and entrepreneurial spirit, however, do be mindful to define formal human resources practices and procedures so that you can evaluate their skills, assess performances, and review their behaviour, just as you would any non-family employee.

Remember, a satisfied and happy employee is a productive one, and more likely to invest emotionally in and make a commitment to the business – and that goes for family members, too.

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.

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