The #1 Problem in Family Businesses Today

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The most significant problem which will prevent family businesses from successful transition into the next generation is not estate taxes, not competition from the Wal-Marts of the world, not the lack of reasonably sound financial planning, and not the lack of industriousness or work ethic of successor generations. It’s the epidemic behavior exhibited by senior generation or founding generation business family members who refuse to let go of their companies!

The most significant problem which will prevent family businesses from successful transition into the next generation is not estate taxes, not competition from the Wal-Marts of the world, not the lack of reasonably sound financial planning, and not the lack of industriousness or work ethic of successor generations. It’s the epidemic behavior exhibited by senior generation or founding generation business family members who refuse to let go of the companies they helped build! This not a new or isolated phenomenon; the first significant writers on the subject of family businesses identified the issue in the 1970’s.

The failure to let go and plan for management and ownership transition plagues nearly all family businesses at one time or another. As an example, an 87-year-old founder of a metal business commented he had been trying to exit his company for over 20 years. The founder owned 100% of the metal company’s stock. The succession problem, he stated, was that he was in a dispute with his brother’s widow over who actually owned the company property in an entity outside the corporation. When asked what the property dispute had to do with the gentleman’s exit and transition of management to his three children (ages 62, 57, and 54), he had no answer. When asked when might be a good time to get started on the transfer of management and stock ownership, the gentleman blamed the recession. He simply couldn’t pass the business along to his children in good conscience with the company balance sheet in its current condition. If he himself were unable to return the company to profitability, how could his children? This 87-year-old founder clearly does not view himself objectively. Had he been more self-effacing, he would have seen the clear need to turn over management responsibility and control of the company stock to his children who had worked alongside him for decades to help build it. The children are in a state of despair over the bleak future of the company, and the father is in denial.

The subject of intergenerational transfer planning for family companies is especially important today given the fact that the leadership of about 4 in 10 family owned businesses will have changed hands in the next five years according to The Family Firm Institute. In order to help combat the problem of poor transition planning, The Family Business Institute has produced a new research paper, “Blunt Advice for Multi-Generation Family Companies: What To Do When the Senior Generation Has Trouble Letting Go.” The purpose of the paper is to help senior and successor generations understand the factors associated with intergenerational transition, describe the behaviors that indicate whether a transition is likely to be problematic or not, and to propose strategies for resolving intergenerational issues so that neither the business nor the family is torn apart.

The paper describes in great detail:

  •     The behaviors of senior generation family members who are struggling with letting go
  •     The behaviors of junior generation family members who are struggling with letting go and transition issues of their own
  •     The consequences of poor intergenerational transition for the family, the business, and the individuals in the family system
  •     What to do to assure a smooth, successful family business transition
  •     How to help the senior generation feel comfortable at an appropriate time for letting go

The paper is authored by Wayne Rivers, President of The Family Business Institute, Inc., and author of "You Don’t Have to Die to Win – Success and Succession for Family Businesses" and "Prescriptions for a Healthy Family Business" which is scheduled for publication this fall.

For more information about family businesses or family business succession, visit The Family Business Institute website at http://www.familybusinessinstitute.com or contact The Family Business Institute at info@familybusinessinstitute.com

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