Pressure Stepping Into A Family Firm
11th June 2017 Andrew Steen, Davis Wright Tremaine LLP
What is less frequently discussed is the intense pressure put on the next generation, the generation set to inherit the fruits of the hard work and success and to live up to the expectations of their forebears.
First and second generation family business owners spend an inordinate amount of time focused on building and preserving their family legacy. This is hard, hard work.
For starters, it means not only growing the business and making it successful, but also positioning it for the unique kind of transition that takes place between generations. It is well known that meeting these all-consuming challenges can put a family business owner under intense pressure.
What is less frequently discussed, however, is the intense pressure put on the next generation – the generation set to inherit the fruits of all this hard work and success– to live up to the expectations of their forebears. Many families have children who struggle to live up to the expectations of their parents.
In the context of a successful family business, however, these are not just expectations to do well at school and get a good job; they are expectations to be the successful bearer of the family’s legacy and financial security. This is a high threshold to meet, particularly when the second generation did not choose the business or even to be in business in the first place.
Framing the family business as an opportunity and not a foregone conclusion is an effective way of ensuring the next generation’s motivations to participate in the family business are their own…
It is to the benefit of every family business owner to be mindful of this pressure on the next generation, just as they are mindful of the pressure they face in building the successful business in the first place.
Obviously, a family business owner should be concerned about unprepared, disinterested or unmotivated members of the next generation who just want to take over the reins for the wrong reasons. But he or she should also be careful not to drive away the otherwise prepared and motivated members of the next generation who simply do not want the pressure of this great inheritance.
There are a few ways that some family businesses have worked to avoid this unfortunate situation:
First and foremost, they have made clear to the next generation that, just as leadership in the family business is not a birthright, it is also not an obligation. They have allowed their children to choose to be part of the family business. This basic approach can eliminate a great deal of the unintended pressure on the next generation because the family business becomes a challenge they take on of their own accord, just as the first generation did in forming the business.
Second, they do not give too much responsibility to the next generation too fast. This is a wise policy to ensure that the next generation understands the business and is appropriately prepared for the task of running it. But it also saves the next generation from the expectation that they should know how to do everything from day one. Even for children who grew up in the business, a gradual path to leadership and responsibility can temper undue pressure.
Finally, family business owners can be mindful about how they present the business and its challenges to their children. If the owner is constantly reiterating that he or she is “doing this all for you,” there is inevitably going to be some additional pressure on the next generation.
Framing the family business as an opportunity and not a foregone conclusion is an effective way of ensuring the next generation’s motivations to participate in the family business are their own, and not just the residual desire to make the previous generation proud.
About the Author - Andrew Steen is an associate of Davis Wright Tremaine LLP. He represents both buy-side and sell-side clients in mergers and acquisitions and other equity-based transactions, including venture capital investments, joint ventures, equity co-investments, and restructurings. Drew also counsels companies and boards of directors in matters pertaining to corporate governance, securities compliance, and commercial transactions. For more information please visit their website here