Succession Problems In FamilyOwned Businesses

Autologica presents the fifth part in a series of articles that address some of the common problems and situations that arise in family-owned businesses. The articles are based on an interview between Al McClymont, CEO of Autologica Dealer Management Systems, and J.C. Aimetta, an expert and coach who specializes in family-owned businesses and who has ample experience consulting for this type of company.

Al McClymont: Regarding the succession issue in a family-owned business, specifically the election of the successor, isn?t it possible that this can cause problems if someone feels excluded?

J.C. Aimetta: Well, at first glance I?d say yes, generally a solution brings with it a new problem.

The truth is that you can decide which problem to have: This one that will be generated right now, or the one that will be created in the future of a small company trying to be co-managed by three or four people, with the respective power struggle and the growth of internal bands among employees who are faithful to one or the other.

And another point is that the evaluation generally begins with oneself, with each family member in particular. Then, you can ask each family member: Do you feel qualified to work in the family business?

And it is in these meetings that one discovers that many sons and daughters admit that their life project is not related to the family business, but rather that they are safeguarding their father?s dream, and that when their father dies, they will probably choose to do what they always wanted to do.

If succession is presented as a competition, this never comes to light. But, if you present it as a personal, intimate question, liberating the person from the obligation of continuing with the business role, for it was not he/she who made the decision but the father, it is very likely that at least one or two of the people competing for power will spontaneously separate themselves or accept minor roles because they do not feel this is for them.

Al McClymont: What happens if the chosen successor is offered a better opportunity outside the company?

J.C. Aimetta: First of all, if the family business is managed as a business and not as a family, it should be expected that replacements are planned for.

Children are irreplaceable in a family; nobody brings a child into this world to replace another one.

But in a company, a manager can be replaced by someone else. If these two environments can be differentiated, this would be the most suitable recipe.

However, this is not common. When someone listens to a job offer outside the family business, we can assume that the opportunity represents something better than what they currently have.

It is very common that this extra benefit is not financial, but that instead it signifies an absence of problems, of displeasure.

That is to say, those who accept to manage what is not theirs instead of managing what is theirs, do this in order to free themselves from the stress and tension generated by the constant conflicts of the family.

Note how interesting this is, because this person leaves management but stays on as an owner. In other words, this person decides to dedicate their talent to administer something that is not theirs, and chooses someone else to manage what is theirs.

This is not the same as someone who abandons ownership, who sells their share? this family member abandons the job but retains ownership.

Most likely they have lost interest.

Another reason they may lose interest is simply that the pay is too low. Thus, they think to themselves, ?I am earning 10 here, and I will earn 25 there. But, apart from the 10 I am earning here, I am making this company grow. This company has grown 80% in the last few years. And I am keeping 1/4 or 1/3 of the increase in family patrimony (according to the number of siblings). This is not in my best interest.?

In the next part of this interview, we?ll talk about how much family members who work in a family-owned business should earn.

Read the previous articles in this series:

Part 1: The main reasons a family-owned business can fail
Part 2: What happens when one family member wants to sell their share
Part 3: How to reconcile the interests of family members who work in the company, with the interests of those members who don?t
Part 4: How to plan for succession in a family-owned business

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