Next Generation Succession

Steer Your Family Businesses Through An Unplanned Transition

Two years after her parents passed away, 63-year old Alice Tazzi (Identifying details have been disguised) found herself in a frustrating situation. As with several other recent efforts, she was unable to get her brothers to agree on a significant business investment.

Alice had become president of her family business at the age of 61 after several decades watching from the proverbial wings as her parents ran the business. In the past, when she and her brothers had disagreed on anything, her parents mediated the disputes. But since Alice took over, she and her siblings — who now owned the business equally — found themselves increasingly unable to make decisions together. And the business, as a result, was suffering.

In another family business, Ben Metter, a 25-year-old electrical engineer, was also frustrated, but for a
different reason. It had been three months since his parents died unexpectedly, and two months since he
decided to leave his venture capital job to return home to become CEO of the global condiments business that he and his sister now owned. Night after night, he found himself thinking about his parents and questioning whether he had made the right decision.

At first glance, Alice’s and Ben’s stories may seem like they couldn’t be more different. But in fact, they are
both cast from the same mould: the difficult aftermath of family business leadership transitions that happen
outside of a conventional timeframe.

In a perfect world, family businesses will transition leadership from one generation to the next along a
predictable and well-planned process — whether that’s determined within the business, the ownership
group, or the family itself — passing the baton after years of preparation. But more and more families are
discovering that their transition experience doesn’t follow that path.

Advances in modern medicine have increased human life expectancy and productivity, allowing some leaders to continue playing a central role into their 80s and 90s. And this, of course, can leave family members with a false sense of security — of course they will live a long life, they assume, so why even think about planning a leadership transition just yet?

Meanwhile, natural disasters, accidents, and illness (as the COVID-19 pandemic has demonstrated so
clearly) have the ability to claim many of our loved ones much earlier than we expect. Both scenarios can
leave leaders utterly unprepared for the job.

An unprepared next generation often defaults to backing away, either opting to leave employment in the
business or treating it purely as a financial asset without engaging in leadership. Both options tend to lead to
selling the business altogether — an outcome that the previous generation may not have anticipated or
wanted. But such unplanned transitions don’t have to inevitably end in disaster. With some preparation and
creative action, we’ve seen many business families get up to speed quickly in these less-than-ideal
circumstances.

Both Alice’s “delayed transition,” and Ben’s “surprise transition” ultimately created what we’ll call a
generational hangover. Because Alice’s parents clung to their leadership positions for so long, they never
really began the hard work of preparing successors. And Ben was too young to have learned from his parents’ example, or even to really decide if the family business was right for him. In both cases, absent their parents’ guidance, they were left with a unique set of challenges and only a limited understanding of how best to address them.

Dealing with Delay

Those like Alice, who find themselves in a delayed transition, face a common set of challenges. For example,
people who have been waiting on the sidelines for a very, very long time may be battling damaged self-confidence because they have never had a chance to escape their parents’ shadow. Often, they have never
learned to make decisions together or resolve disputes among themselves, since they could always go to mom or dad to fix it for them no matter how old they were.

Even when they make the effort to step up, there is frequently a perception among non-family employees and advisors — who may still refer to those like Alice as “the kids” well into middle age — that they are not fit to lead, undermining their leadership before it’s even begun. And finally, the problems can be compounded because the next generation (“the kids’ kids”), now in their 20s or 30s, start knocking on the door. And if you aren’t ready to show them a path to leadership, they may lose interest in the business altogether, choosing instead to dedicate their time elsewhere, rather than wait years, even decades, for their turn at the tiller.

If your family is in the midst of a delayed transition, there are four main options to consider:

  • Get your house in order: Some find it best to fix the challenges in their generation before engaging
    their children. You should consider this approach if it feels like the conflict is so destructive that
    bringing the next generation into it might end up “poisoning the well.” The benefit of dealing with the
    transitions in sequence is that you can create and pressure test governance structures and processes
    that a larger group will need to rely on to make decisions. And you can present a united and aligned
    front when you are ready. The major risk of this approach is that by keeping out the next generation,
    you are further postponing an integration of them that is already overdue.
  • Play catch-up: Another approach is to integrate the next generation into the transition process from
    the beginning. As soon as the transition (finally) happens, start working together. The senior
    generation will still have the formal authority, but can create space for the next generation to
    participate in a meaningful way and have a voice even if they don’t have a vote. Taking this approach
    requires everyone involved to learn “on the job” how to tackle the hard issues, to disagree
    productively, and to make decisions together. The complexity of addressing both generations
    requires significant effort, commitment, and coordination, but can drive lasting and sustainable
    results. The family will no longer be behind the eight ball.
  • Work backwards: In some instances, the generation in control is simply not willing or able to tackle
    the difficult decisions that come with stepping back from the limelight and relinquishing control to
    their children, nieces, and nephews. This risks a stalemate that will likely replicate the current
    dynamic into the future. One way out is to essentially leave the current structure as it is and focus
    instead on designing how the next generation will work together. Not pushing for immediate change
    can open up space to work and help the next generation prepare for their turn, under the guidance of
    those currently in charge. In a number of instances, we have seen that the senior generation was
    willing to take incremental steps towards that agreed-upon future once it was in place.
  • Skip a generation: We have also seen, in rare cases, families who decide to skip a generation entirely.
    In one case, a mother and father had three children who were equally qualified to run the business
    but, absent years of practice, found themselves unable to make decisions together. Rather than battle
    it out and further disrupt family harmony, those siblings chose to transfer leadership and control to
    the eldest of their own children, a credentialed, connected, and well-respected businesswoman.

Surviving the Surprise

Surprise transitions like Ben’s bring about their own distinct issues. Often, those thrust into leadership
positions may not have developed the experience or skillsets traditionally required to lead, finding
themselves wondering, “Am I even capable?” Others may feel pressure to step into the role of their deceased
parents — mitigating disputes, hosting Christmas, maintaining family harmony — which can damage sibling
relationships, especially at times of loss and change.

Long-term, those like Ben who are thrust into these roles can experience intense resentment and can ultimately find themselves longing for a career or life that could have been. The net effect of these challenges can create a domino effect whereby that generation experiences fatigue and chooses early retirement, perhaps before their children are ready to become owners or lead the business.

Families who have found themselves in Ben’s shoes have taken several successful approaches:

  • All in: Some families choose a next generation leader whether that individual is ready or not.
    Recognizing this person is in a difficult position, they broadcast their faith in the individual to key
    stakeholders. These families often surround this individual with trusted advisors and also are more
    accepting when things don’t go exactly as planned early in the tenure.
  • Pinch hitter: Other families hire an external trustee, board, or CEO to steward the business until the
    next generation is ready. Good pinch hitters are hard to find, because they need the right mix of low
    ego, a teaching mentality, and both interests and a timeframe that are aligned with the family,
    owners, and future leaders. Those who do find good pinch hitters will need to go to extraordinary
    lengths to ensure fit and align incentives with the broad range of family objectives.
  • Non-family leaders: Still other families hire external leaders who plan to be there for the long-term.
    That can fill the leadership vacuum. But external executives bring about their own principal-agent
    problems, which require more structure to protect the family and owner interests. These families
    often build complementary governance forums like a board and a formal Owner Council to clarify
    how the owner priorities are communicated and protected, which helps steward the assets alongside
    the new leadership.

As each family business is unique, there is no one right or wrong answer on how to overcome an unplanned
transition. But understanding the issue you are up against and the potential paths you can take in such a
transition are an important first step to casting a future for your family business that is free from the
challenges that poorly planned hand-offs create.

This article was first published in the Harvard Business Review & it has been reproduced with permission of the authors.

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