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Articles - Successful Management Techniques in the Family - Business

Family Business -- When is it time to let Jr. run the show

Thursday, January 05, 1995

By Kathy J. Marshack, Ph.D., P.S.

"The acorn doesn't fall very far from the tree," as the old saying goes. Fathers have for centuries taken great pride in their sons' accomplishments as they groomed them for adult life. Likewise for centuries sons have worked hard to earn their fathers' respect and eventually earn the privilege of manhood. In the family-owned-firm this familial pattern has evolved into sons going to work for their fathers and eventually taking over responsibility, management and even ownership of the family business. In spite of the anthropological significance of this rite of passage, the transition from son to president of the company, or from child to man is not a simple one in our modern world. The fallout from a poorly planned transition can be financial loss and alienation of family members. The key to making the transition successful is recognizing the developmental needs of all parties concerned, the father, the son and the business. Two researchers, John Davis and Renato Taguiri in 1989 studied family-owned-firms to discover the influence of life stages on the work relationship of fathers and sons. Interestingly they found that age and stage of life of both father and son does have a powerful impact on the relationship and on this transition from child to man. For example, when a father is in his forties and his son is between 17 and 22, the relationship is relatively problematic. A man in his forties realizes that there is an end to life and begins to question his accomplishments. There is an urgency to make changes, to correct one's mistakes before time runs out, to prepare a legacy to leave behind (i.e., the family business). In other words men in their early forties are facing the mid-life crisis and generally pour themselves into their work. They are very controlling of their destinies at this stage and don't take kindly to suggestions from a youngster right out of college. The son, on the other hand is in the stage of life where he is still in the process of separating from the family. This separation is a necessary component of growing up. Without it, the child cannot learn who he is separate from his parents. Conflicts with father are common and emotionally charged at this time. And going to work for father at this stage of life is like extending childhood to a young man, which he can hardly tolerate. However, as the father moves into his fifties and the son is between age 23 and 33, the working relationship becomes harmonious. In fact fathers and sons both report that the best working relationship during the entire period of working together occurs when the father is between 51 and 60 and the son is between 23 and 33. This period of time for the fathers is a period of tranquility. They have weathered the mid-life crisis and their sons coming of age. Now their goal is to use reason instead of control to run the company and their lives. They still want to maintain the "old" ways but they are much more willing to negotiate. Men at this stage have proven themselves and are now less competitive, less condemning of others, have less need for possessions, and they are more attentive to relationships, including their sons' developmental needs. Sons between 23 and 33 are not particularly emotionally stable. However, this is a good time for fathers and sons because the son needs a mentor. The sons are experimenting with life, work and relationships in an effort to find their true calling. An older man who can guide them in the process is welcomed because the son feels extreme pressure to grow up, now! Since father is no longer so competitive and is even inclined to encourage his son's development, the son can feel free to nurture his dreams and develop mastery in an area. By the age of 30 to 33 the son has made a commitment to marriage and a career. It is during this stage of development that fathers are able to give their sons recognition for their accomplishments. Again the shift away from harmony and toward problems occurs as the father enters his sixties and the son is in his forties. Men in their sixties are facing retirement even if they own their own firm and expect to work until their death. At this age men are aware of their decline and the eventual loss of meaningful activity. Many fathers at this stage are unwilling to turn over the family business to their sons because of this fear of death. They have a strong need to still demonstrate their skills and authority during this period. At the same time that fathers are facing aging and decline, their sons are facing the mid-life crisis. The sons have a strong need to re-evaluate their relationships. They no longer want a mentor. Rather they want recognition, advancement and security. They resent reporting to father. They feel held back by father and annoyed by his "old fashioned" ideas. As the sons feel more confidence in their role as a competent man and authority figure, they may challenge their fathers more, causing considerable strife in the work place.

Quality relationships between fathers and sons don't just depend on life stage, however. They also depend on understanding, communication and planning. Davis and Taguiri for example, found that the sons they studied were more aware of the problematic relationships than were the fathers. There could be many explanations for this phenomenon, such as the possibility that the fathers discount tension in the relationship because they feel more responsibility for the way things are. Another explanation is that the person with the least power is often more aware of the tension in relationships. In any case, both parties need to be aware and communicate about their life stage and that of the other. Fathers who retire gracefully from their firms have developed a succession plan that takes into consideration the developmental needs of both parties. When the son is mature and competent to run the business he should be allowed to do so. However, the father does not have to give up his life. As the son assumes the presidency, the father can become chairman of the board. Some retiring CEOs turn their creativity to other projects such as a community endeavor or even another entrepreneurial venture. Also young men should be encouraged to "find themselves" outside of the family business. If they never separate from father, they will never really trust their competency as adults. Extending adolescence by working for Dad during the teen years and early twenties does not prepare a man to take over the presidency at age 42. Many successful family-owned-firms encourage their sons to work for competitors or in other industries before they are allowed to take a position in the family business. By the time the son returns to the family business, he knows that he can make it on his own. Then he puts that confidence to work for the family. The ability to work for one's father is one of the most rewarding experiences a child can have. In one study, researcher Ann Patrick-Lemay found that offspring of entrepreneurs report the number one benefit of working for their fathers is the chance to have a close and meaningful relationship. This was even more meaningful than salary or career advancement. If fathers and sons can keep these findings in mind as they negotiate through the years together in the family business, they will have much more success weathering their own and each others' developmental crises.

Who's going to run the business after dad dies?

Thursday, November 03, 1994

By Kathy J. Marshack, Ph.D., P.S.

"Carson Resort For Sale." I read with great interest the front-page article in "The Columbian a couple of months ago about the sale of the Carson Hot Springs resort. The old hotel is kind of a historic landmark to most residents, so no wonder it was front-page news. But what really caught my eye was the authors comment, "Rudy Hegewald died unexpectedly at the age of 88."

Twice the author made the comment as if the Hegewald family as well as the reading public would be surprised at the death of an elderly man. It seems to me that 88 is a ripe old age even if he did take mineral baths daily. Rudy actually lived well beyond the 70 or so years of normal life expectancy for a man of his generation. So why is anyone surprised at his death?

The irony of this is that this "surprise" is all too common among family business owners. A strong willed entrepreneur like Hegewald takes advantage of an opportunity, builds the business to success, then dies leaving the family totally unprepared to continue the business. The business gets sold and the family legacy dies with the founder.

Family owned businesses are as common as varieties of chocolate chip cookies. In fact, half of America's grow national product is produced by family firms. As well, 50 percent of the nation's workers are employed by family owned businesses. Yet family business owners are notoriously poor at planning for the future of their businesses. They literally act as if the founder will never dies. As a result, most family firms don't live beyond the first generation.

Death is not an easy subject to talk about; nor is retirement, especially for rugged individualist and entrepreneurs or their families. But it a subject that needs to be addressed by all members of a family firm. Is the business merely a reflection of the founder? Is it his personal property? What part do other family member play, shareholders and stakeholders alike? Who will run the business after the founder steps down? When will the founder step down?

Answering these questions and others leads to the development of what is known as a "succession plan." Even though it is tough to plan ahead to the day when you are no longer running the business you founded, it can be exciting and rewarding to know that your creation will live on and prosper under the guidance of a trusted family member. Equally rewarding is knowing that you have provided for your family.

While it is too late to work on a succession plan after the death of a founder, it is never too early to plan, even if you have no successor or just started your business or your kids are too young to even work yet. Succession plans can evolve over time to fit the changing needs of the family or the business or both.

At first, you plan may be nothing more that the understanding with your spouse that you both want the business continued after you retire. The initial plan my include provisions for how to groom the successor when one is chosen, for example. The key ingredient in all plans is that the stakeholders are communicating with each other about the need and that you are looking towards a healthy future.

When considering a succession plan it is best to enlist the aid of professionals who are knowledgeable about the unique needs of a family firm. Attorneys and CPAs can assist you in addressing the issues of estate planning. Management consultants can advise you about the most desirable business structure. Perhaps it is time to look at professional management, for example. Or perhaps your niece is better suited for he presidency than you son.

The toughest questions that need answering about succession, however, cannot be answered in an attorney's office. The founder and his or her family need to break down the old barriers to talking about death and retirement. All of the old "skeletons" in the family closet need to be cleaned out. Emotions, biases, age-old grudges need to be vented, explored and settled.

Until the family can talk openly and honestly about how they feel about each other, they cannot make a reasonable decision about how to run the company. Like it or not, the family system or style is what really dictates how things will go in business. So understanding your family system and improving it contributes to a healthier business.

Just as with legal and financial decisions, the emotional or psychological aspects of succession planning usually require the assistance of a professional. Psychologist trained in the dynamics of families as well as the workings of a family business are best suited to guide you through the emotional process of succession planning.

The psychologist's job is to meet with all stakeholders individually and in a group to discuss absolutely everything that can affect the succession plan. This is not a time to be secretive. The future of the business and you livelihood depends upon open and honest communication. Families who don't plan ahead not only lose control of the business, they often have a myriad of other problems associated with the loss of the business, such as infighting, divorce, alcoholism, depression, etc.

A psychologist understands these kinds of "people" problems that are intertwined with business decisions. Their goal therefore is to help you create a plan that suits two purposes, 1) To ensure the success of the business, 2) To ensure the health and happiness of the family.

In order to accomplish these important goals family members need to face the tough issues that most other people avoid.