By Prof Enrique Soriano
World Bank/ IFC Family Governance Consultant
Jeff Faulkner once warned business owners, “Entitlement issues are rampant in family owned businesses. It is a stealthy and dangerous disease that can have a widespread and prolific impact on our business culture, as well as at home. How do we keep it from becoming an epidemic in our business and family lives?”
Bequeathing a business on the other hand is a once-in-a-lifetime event and any poor, hasty judgment on succession can take out a business in one fell swoop. When you are planning on retiring soon, then having someone ready to take over the business is undoubtedly very important. But it is not an easy task to just turnover the business to someone.
The family business ecosystem is so complex and naturally confusing. It is further aggravated when family members are actively working in the business. An enterprise with several family members has twice as many opportunities for conflict, misunderstanding and resentments. Therefore, teamwork is essential and effective communication is critical in aligning the entire organization to the succession objectives initiated primarily by the visionary, advisor and the family members.
Consultant Rick Johnson correctly stated that “an attitude of entitlement that is displayed openly can create major challenges for even the most successful family business. This attitude is often displayed by the family member’s work ethic expecting every employee to “live to work” and give of themselves unconditionally while Junior takes off every Friday afternoon or goes on extended vacations.”
Johnson further expounds that “these children often manage with an autocratic style with little empathy for employees and leaving the impression that they can do whatever they want because they will run the company someday.”
Having entitled and confused successors in the family business is fraught with danger. When they are made (forced) to join the family business straight from college and without rules that define their participation, you can expect them to act like spoiled brats and bully their way by demanding power without accountability.
Entitlement and the next generation “owner mentality” is one of two evils (Patriarchal control is the other evil) that every parent/ business owner has an obligation to resolve. This apparent role confusion is a real danger and must be nipped in the bud before it goes out of hand. It is pervasive as the entitlement feeds into the child’s last name and becomes a birthright then suddenly degenerates into a mindset of an owner mentality.
So how can you turn the business over to your children sans entitlement? Why do other family businesses transition successfully and some woefully tragic? This is probably the toughest question any business owner will ever face. And it can be thorny.
Firstly, it all depends on how well the owner has prepared himself or herself and the children for this transition. Second, what really touched off the succession? Was it due to a triggering event like death, an illness or a medical scare? Was it a bruising conflict among senior business owners (siblings and cousins) or plainly the owner’s advance age. Or a realization that death is near and that he or she has to “pass the baton” now.
I am highlighting four very important and non-negotiable criteria in laying the foundation for a successful succession to happen:
- The candidate must have the right leadership qualities, acceptable to all and a proven track record
- Appoint highly qualified directors with proven integrity and competence
- Institutionalize a culture of accountability reinforced with corporate governance
- Every decision must be guided on “what is best for the company and not self”