Succession: The Final Act Of Greatness

The ability to carry on a successful intergenerational transfer of ownership and leadership (succession) is one of the most important issues facing a family business. This issue is plagued with conflict, and accounts for the majority of engagements with family business consultants.

Succession has often been called the final act of greatness. How ideal for a family business founder to have his or her creation live on long after they are gone.

Most family businesses do not have a successful transition of ownership from the founding generation to the second generation. Studies have generally agreed that about 30 percent of businesses transfer to the second generation, while only 10 percent to 15 percent successfully transfer from the second generation to the third generation. Only four percent manage to stay in the same family in the fourth generation.

The majority of family firms want to keep the business in the family and pass it on to the next generation. The American Family Business Survey in 2002 found that 85 percent of the firms surveyed wanted to continue with family ownership.

A family-owned business is more likely to fail due to lack of a succession plan upon the founder’s illness or death than for reasons having to do with competition or market forces. One survey reported 77 percent of failed family businesses that declared bankruptcy did so after the death of the founder. Many family business researchers agree that the primary underlying reasons for failed successions are a lack of effective decision making and a lack of proper planning.

Often the failure to plan is caused by an entrenched owner who cannot concede power or will not tolerate a reduction in personal authority, responsibilities, or control. The reasons for this scenario are numerous and can be quite complicated from a psychological perspective.

Often, the previous generation simply does not want to be put out to pasture. If they are the founders of the business, they often feel the company is their “baby” and their identity is closely interrelated with the company.

Others equate retirement with death and simply do not want to discuss the issue. Of the CEO respondents to a large nationwide study, nearly one in seven reported they would never retire! This causes much consternation in the family, especially among the next generation members. The next generation waiting in the wings wonders when they will ever get their chance to lead.

Awareness of the life cycle stages becomes apparent when initiating conversations regarding succession. Research has shown that at certain ages, the relationship of the founder and the successor can be either rife with conflict or relatively smooth. This is especially relevant with a father-to-son generational transfer. When a founder is in his relatively young 40s and 50s, and the successor is in his 20s or early 30s, the role conflict can be at its worst — and most visible.

The current familial roles of each family member in their respective life cycles present barriers to effective communication and to efficient working relationships. If a founder is in his 60s or 70s and the successor is in his 40s, the competition and conflict typically is less, resulting in a more positive working relationship. There is often significantly less conflict between a father and daughter, and transfers of leadership can be very smooth between opposite genders.

Reproduced with permission from Keanon Alderson and The Press-Enterprise Keanon Alderson Ph.D. is an associate professor in the Robert K Jabs School of Business, at California Baptist University in Riverside CA. His book “Understanding the Family Business” was published in 2011. He can be reached at kalderson@calbaptist.edu