Preparing the Next Generation of Leaders for the Family Business: Part 4 of 4

Posting by Geoffrey D. Brown, CPA, Principal

In my prior posts on this topic I discussed identifying possible leadership candidates, and establishing criteria for education and appropriate work experience for your family business’s future leaders. Outside of those three issues, there are several other considerations that a family business CEO or owner should take into account when preparing the next generation of leaders for the family business. For an effective succession process, it is essential to manage the expectations of the next generation, communicate openly with other family members, preserve important traditions, and, if necessary, consider a non-family CEO.

Managing Expectations

As I discussed in the first part of this series, it is important to make sure that the next generation understands the rules and requirements for employment in the family business. Communicating these expectations, as well as openly evaluating progress towards indicated milestones, is critical to the ultimate success of integrating the new leaders.

Creating any kind of false hopes or ideas, or not communicating expectations (which then often creates false hopes and ideas) is probably the single biggest mistake that you can make. Part of your goal is to integrate the next generation in such a way that they all understand their roles and responsibilities and are comfortable in their positions. Family harmony cannot be underappreciated as false hopes, unchecked rivalries, and misunderstandings can often complicate or ruin the succession process.

Communication with Other Family Members

In order to maintain family harmony, communicating intentions concerning the next generation to other family members is essential. If you have no intention of hiring your sister’s son, despite her persistence that he is a gifted leader, you should let her know as early as possible and be ready to provide reasons for your decision. This is where our previously discussed standards regarding education and work requirements come in. These standards help to provide objective reasons as to why some family members are elevated to leadership roles and others are not.

Preserve Important Traditions

Just as families have certain traditions surrounding holidays or vacations or maybe some philanthropic endeavor, family businesses often have certain traditions that are important to the culture of the business. Ensure that the next generation of family leaders is acquainted with those traditions and understand the significance to the business.

For example, a business may participate in an annual fundraising effort for a particular charity because a beloved employee died of a particular disease. It means a lot to the employees and is a way of remembering and bringing everyone together for a good cause. Or, your family business may offer a special reward or recognition to employees for reaching a milestone because it embodies certain company values and is an important part of family and company culture. Understanding these traditions will allow the next generation of leaders to more successfully transition into their leadership roles and continue to support the important intangibles of your family business – your company values, mission, and culture.

Non-Family Executives

When push comes to shove, you may find that you have no viable successors in the next generation of your family. Non-family executives may play a very important role in your family business – there are a number of family businesses with non-family CEOs.

For this arrangement to be successful, there are two issues you need to face. First, you must manage the non-family executive’s expectations regarding compensation, role and responsibility. How do those expectations fit in with your plans for the next generation of family leaders? The second issue to resolve is integration. How do you effectively insert the next generation into the executive mix without creating friction, animosity, ill will, etc. between your key non-family executive(s) and your family members?

As with any family business issue, communication is key – bringing on a non-family CEO is a process in which your leadership team, board, key family members, and the next generation must be involved from the very beginning in order to keep communication lines open and maintain good will among family members.

In this series, we’ve looked at the process of developing the next generation of leaders and have tackled a number of important issues that are necessary for an effective succession process. While it can be an emotional endeavor, and one that you would like to avoid, succession planning must begin early. Developing the next generation from a young age will allow you to find the best fit for your family members and your business and will help you establish effective family leadership for a successful future.

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