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Succession or Termination in the Family Business

Guest post by: Dr. Rick Johnson

Article Overview: Succession Planning is often like riding a Roller Coaster Selecting one child over another to become President and run the business will likely be the most difficult decision you will ever have to make as the owner. There will be ups and downs in the process. However, before you come to the conclusion that you are actually going to hand Aunt Lilly or your son the Presidency, you must be sure that you have exhausted every possible option and scenario imaginable to ensure the future success of the business.

Succession or Termination in the Family Business

The following are excerpts from a real world conversation disguised to protect confidentiality.

"I love Toby. He's my oldest son, he's Vice President of Sales but he just doesn't get it. My daughter should be running this business as I transition into retirement, she's brilliant but she's married to a surgeon and doesn't want anything to do with the business. My youngest son who is our operations manager has great potential but he's only thirty one years old and just isn't ready to take over a $100 million dollar business. I hired a succession consultant to help me transition into retirement. He told me that Toby was incompetent, destructive to the business and I should fire him. Now what do I do?"

Does this conversation sound familiar? Maybe it's not about your son or your daughter. Maybe it's about Aunt Lilly or Uncle Chester. The point is if you own a family run business with multiple family members working in the business, chances are you have or will face the dilemma of what to do when a family member just doesn't meet satisfactory performance standards or you simply have to choose your successor from several family members.The key word here is family and the closer the family member is to you the owner, the more difficult the decision and action becomes.

Succession Planning is often like riding a Roller Coaster

Selecting one child over another to become President and run the business will likely be the most difficult decision you will ever have to make as the owner. There will be ups and downs in the process. However, before you come to the conclusion that you are actually going to hand Aunt Lilly or your son the Presidency, you must be sure that you have exhausted every possible option and scenario imaginable to ensure the future success of the business.

Put Business Needs Ahead of Personal Needs

Consider all scenarios. Your son, Johnny, may be there simply because he doesn't want to disappoint Dad or Mom. Johnny feels he is supposed to act like an incumbent president because the family expects it but he would rather be a missionary in Africa or build his own auto parts dealership or pursue some other passion he has.

If you have two children in the business, don't make the gutless mistake some owners make and decide to make both of your son's or daughter and son co-presidents. That can become a disaster. Uncle Joe may be the most qualified successor but how do you hand him the reins over both of your sons? So, how do you decide on just who your successor should be? This is a tough question and there is no magic answer, every situation is different. Every family has its own idiosyncrasies.

This is probably the toughest question any business owner that has family working in the business will ever face. However, the answer is simple. The answer is..... It depends. It depends on how well you (the owner) have prepared yourself and your child for this transition. Have you planned this out? Has your successor been trained, developed and prepared for the transition?

Succession is pretty easy if you only have one child in the business and he/she just happens to be the next Jack Welch of the business world. This child has worked outside the business for someone else for a minimum of five years. They have completed their MBA and they worked their way up in your organization starting in operations or customer service. They don't walk around with their silver spoon visible and they don't wear their family title on their sleeve. "Piece of Cake!"

Let's face Reality--- That scenario, although it certainly does exist, is the exception and not the rule. In most cases privately held businesses generally have several family members working in the business. When the president has more than one child in the business, things start to get more complicated.

So, how do you decide on who should be the next President? If you are not one of the lucky few with only one family member in the business and you have multiple family members to choose from, your stress level is already at a high point. First, many if not all family members working in the business have feelings of entitlement to some degree. This is generally true of at least one if not all of the president's kids. Choosing the next president becomes even more difficult if the children have used their name as a title instead of the actual title of the job function they performed and the position they hold in the company (This is often unintentional and some kids don't even realize it). This difficulty increases exponentially if none of the kids have demonstrated a high level of competence, respect for all employees, leadership skills that pattern the servant style and at least some promise of potential to fill the president's shoes.

Although the majority of parents would prefer that their children take over the business and carry on the family legacy, this is not always the best option available. I know it is difficult for any parent to admit that their child may not possess the skill sets necessary to take over as President of the company. However, that situation actually does exist in many family businesses. In fact, some family businesses have family members working in the business that are incompetent and become detrimental to the success of the business and often damage the culture and core values of the business itself.

Terminating a Family Member

If you have a non performing employee that happens to be your son or daughter it is extremely difficult to consider termination; after all you have your home life to consider and that son or daughter has a relationship with their mother who happens to be your wife. Don't kid yourself about your level of control at home being equal to your level of control at the office.

Your closeness to the family member is the major determinant to the amount of patience and effort you put into the process. And of course, the amount and type of destructive behavior is also paramount to the decision you make regarding termination. It is possible that this family member can be placed in a position that is not detrimental to the company and does provide value. This can be a drawn out process that starts with frank, open & honest communication with the family member. It will most likely require some form of counseling to be effective and may require a separate family discussion dependent upon circumstances.

If you enlisted the aid of a consultant, remember that as an outsider it is very easy for them to see a clear picture of the business side of the situation due to not being involved in the actual culture of the business. However, it is likely that they can't come close to feeling or understanding the emotions that you will experience during this process unless they themselves have gone through it in a family business they owned. I say that because having fired my own wife, brother-in-law and nephew from my own family business exposed me to the turmoil, the pain, the frustration, the guilt and the personal second guessing that you too may experience as you go through the process.

Accept Your Circumstance

If you have exhausted every effort to salvage the situation and feel you have no other alternative, understand going in that it is going to be extremely difficult to terminate a family employee in the same effective manner that you would terminate a non family regular employee. Complications are even greater if that family member is a stockholder regardless of the type of legal agreements your lawyer may have drawn up. The first thing a family member will do when facing termination is to seek the support of other family members. If it is your son or daughter this could actually create a serious challenge at home. It is no secret that one of the primary reasons an entrepreneur starts a business in the first place is to provide income and security for his family. "Blood Is Thicker Than Water".

Personally, I believe the last thing you should want to do is sacrifice family for the business. If you actually get to that point in the process ----- Don't sacrifice your family life, your relationship with your children or the relationship between brothers and sisters.

Sell the business. I repeat --- If it comes to that - Sell the Business.

Don't Apologize

If you can turn this family/business problem in to a win-win situation, there is no need to apologize. Don't backpedal and don't be afraid to confront other family members that may not be supportive of the process. This is a business and once you have determined that this situation will not destroy the family you must treat it in a professional business manner. Remember, if it is going to destroy the family --- Sell the Business.

All This Can Be Avoided ---- Right!!!

As a family business consultant, it would be easy to preach to you about how to avoid this situation in the first place. You can read all the articles, the advice, research on the Internet and the books that give advice on family management offering solutions like the following;

• Establish specific job descriptions for family members

• Establish expectations up front

• Create advancement criteria up front

• Establish official family compensation programs paying family members based on the position

• Establish accountability and structure up front

• Create a Board of directors that is not family dominated

• Define a philosophy and stick to it

• Make no exceptions for family regarding performance

• Set specific education requirements

• Annual training, coaching and mentoring requirements

And Wolves still Roam the Streets of Chicago. Yes, these are all good ideas but give me a break. This is not reality when we are talking about your sons and your daughters, your wife's brother or sister, your brother's son or daughter or even Uncle Joe.

In the end ---- immediate family does come first. If you find yourself in a difficult situation, take a step back. Evaluate your circumstance form both the business side and the family side. There is no easy answer but nothing is impossible. Keep the faith.

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Article Tags: business succession, family business, human resource, succession planning



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