To ensure the smooth succession of leaders, family businesses need to build a human capital development strategy. Too often, they wait until they have reached a critical point before addressing this issue.
For centuries, the first male heir has been the natural successor within family businesses, with the rule of primogeniture taking precedence over other selection criteria. Although today more family businesses choose their future leader according to the suitability of their skills for the specific position, blood ties are still important.
For the transference of management power within the family, there must be one or more descendants who are sufficiently motivated and aware of the company’s challenges, have a solid professional background relevant to the business, and want to take over.
Sometimes, of course, there is no suitable family candidate, so it is important to have mechanisms that facilitate talent management in family businesses. Miruna Radu-Lefebvre, Audencia explains more.
Preparing Potential Candidates
The selection and preparation of potential succession candidates should be seen as a long-term process. Therefore, shareholder families should do more to cultivate and develop the family’s human capital through appropriate education and strategic socialisation, to prepare the next generation to take over the business one day.
To ensure that only committed and qualified family members can be considered to run the company one day, why not formalise the process with a family charter? This could define in advance the skills and attitudes expected of such family members, the methods for evaluating their performance and how their career should develop within the company.
However, this type of arrangement can become an obstacle to the retention of outside talent, especially if management positions are reserved for family members only. The company will therefore have to find other incentives to retain these talented employees.
In the absence of an identified and available successor, it may be decided to appoint an external manager on a transitional basis, pending the identification of a family successor. This option is frequently used in German family businesses.
The delicate issue of opening up the business to external managers sometimes raises a stumbling block for family shareholders who do not wish to dilute their power and for whom the principle of exclusive control is a dogma.
Rethinking Governance Bodies
Instead of limiting themselves to merely providing information, boards of directors could take on more responsibility for talent management within the family business by building an effective strategy for the development of both family and non-family human capital in the service of the company.
Human capital issues must be a real cornerstone of the board’s work. In this area, too many companies still wait until they have reached a critical point before addressing them.
At the same time as developing a succession plan, companies should also review or reorganise the rules of governance between shareholders and management. On this occasion, the implementation of a dual or dissociated governance system composed of a board of directors on the one hand, and a general management team on the other, allows the new director to enjoy real autonomy and a great deal of freedom in terms of decision-making. At the same time, via the board, the shareholders can better organise the dialogue and control with the executive management, especially when the latter is managed by an external manager.
About the Author – Miruna Radu-Lefebvre is Holder of the Family Entrepreneurship and Society Chair at Audencia.