Management Development and Succession in Family Owned Businesses

By Scott, Robert B. | The National Public Accountant, August 2002 | Go to article overview

Management Development and Succession in Family Owned Businesses


Scott, Robert B., The National Public Accountant


More than 90 percent of U.S and Canadian businesses are owned and managed by members of a single family. Most family-owned businesses do not survive the second generation. The average life expectancy of such businesses is roughly 25 years.

Families create, develop, and destroy their enterprises in a generation's time. Their businesses bring wealth, pride, and influence, but they also bring frustration, discord, and bitter estrangement. Many families create wonderful businesses, then destroy them. Family disputes can wreck a world-class business. Business disputes may ravage family relationships and dissolve the bonds of love.

How Accountants Can Help

Accountants in public practice know all too well that the most vexing problems in many client businesses are related not to production, marketing, finance, or systems development, but to family issues, such as who gets which job at what salary or who will be boss in the next generation. Business decisions are tainted by family considerations. Family decisions are tainted by business considerations.

The overlap of two incompatible systems lies at the heart of virtually all family business issues and problems. On the one hand, there is the business itself, a mixture of talented people and other resources, organized for specific purposes, with its own culture, vocabulary, and pecking order. The business must be continually revised to adapt to an ever-changing world. On the other hand, there is the family, formed and developed by the luck of the draw and organized in its own quirky way. The family, too, has its own culture, vocabulary, and pecking order--but they are based on biology, birth order, and tradition. Change typically is infrequent, poorly-managed, and controversial.

Both at home and at work, the two systems clash. Family considerations drive business decisions; business considerations drive family decisions. The young person who outperforms his or her older siblings, cousins, or parents is viewed as a threat to their cherished positions of honor and respect in the family. The parent who longs to sell out and retire wealthy tries to preserve the business for the family or as a monument to the family's accomplishments. A young college graduate who wants to travel, live in another country, become a musician, or just get entry-level experience elsewhere, may be shamed into entering the family business with guilt trips and bogus promises. Good performance often goes unrecognized; mediocre performance frequently is ignored. Nepotism, with emotional strings attached, prevails.

Family-owned businesses can be wonderful places to build a career, but contrary to popular opinion, they are never the easy way out. Since accountants often are accepted and trusted by multiple generations in a family-owned business, they are well-suited to the task of educating family members about the urgency and dynamics of the transition process and guiding them along its challenging paths.

Management Development and Succession

Management succession within a family can be a blessing from the standpoint of all concerned, but it is, without question, the most difficult issue most family-owned, family-managed businesses will ever face. In almost every case, the time to confront this ultimate issue is sooner, rather than later.

At the risk of trivializing a complex process, I offer these basic guidelines for management development and succession within a family. The guidelines can be used effectively to stimulate discussion of critical issues with clients.

1. Require young family members to gain full-time experience elsewhere for at least 2-5 years after college, before allowing them to work full-time for the family firm.

Part-time or summer jobs in the family business for teenage family members are fine for orientation and motivation purposes, but it is almost always a mistake to permit full-time employment without substantial post-college experience elsewhere.

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