For employees of a family company, the arrival of a member of the next generation signals momentous changes. Suddenly, there is a new and potentially powerful player on the scene, a son or daughter who may wield influence with a parent and use that privileged access to advance his or her views and career.
As the succession process unfolds, some employees, anticipating the day when power will shift, may start to curry favor with the newcomer. Some may get caught in the crossfire of family arguments. Some will exploit family differences to their advantage. If one generation is winning the battle, employees may join it and “pile on” the loser.
What employees may fear the most when a new family member enters the business is that they will one day end up in the path of an ambitious scion’s advancement. Let’s paint the picture.
Dad has a daughter who has just graduated from business school after spending three years working for Citicorp. She’s trying to land a job. In dad’s mind, this is his only chance to snare his Golden Girl. But there aren’t any vacancies at the moment. So what will Janice do?
The dilemma leads to the first family career advancement strategy — The Squeeze: Somehow dad is going to fit Janice into the company. This means she gets a non-essential job and has to scavenge for something to do. She takes on special projects; she does things others don’t have time for; she attends meetings without saying anything.
In Janice’s first months with the company, The Squeeze may, in fact, have benefits. It gives her an opportunity to get to know the company and the people who work there and to figure out what she wants to do next. The Squeeze can be dangerous, however, if it lasts too long and if the lack of a real job gets demoralizing for Janice. She may become a pain to everyone else in the company, because they have to make work for her. In these circumstances, The Squeeze evolves into the Pac-Man Strategy.
Move the clock forward a couple of years: Dad is now faced with an impatient daughter who wants a real job. If she doesn’t get it, she is going to leave — breaking dad’s heart and mom’s. Dad looks around the shop and says, “Aha, we have a real weakness in the purchasing area. Besides,” he thinks, “Old Joe never did keep up with the job.”
For dad, this is a great opportunity to satisfy Janice and, at the same time, upgrade a job in a critical area. Old Joe gets the heave-ho. He isn’t fired but is simply offered a job in Siberia; he gets the message and quits. The succession Pac-Man has gobbled up its first victim,
The rest of the employees have, of course, begun to wonder who Janice’s next target will be. This is not going to make them well disposed to working with her. If she performs well, other employees may forgive the family for the way they treated Joe. If she flubs it, however, Joe’s removal becomes, in the employees’ eyes, an example of favoritism, of the family’s “divine rights of ownership.” It sows distrust and terror in the company.
But let’s say that Janice has moved through the learning phase and proved she is a first-class professional. She has ideas of her own. Her three years in purchasing have convinced her of the wonderful opportunities in resinated polymers. She goes to dad.
“Dad, how about letting me have a chance to set up a new business unit to really build our resinated polymer products?” she asks.
“How much will it cost?” asks dad. When she tells him, he gulps. But dad isn’t about to turn down his favorite child. What is more, from the organization’s perspective, this may be a great move. Janice, the PacWoman, will no longer be taking away the jobs of other employees but will be creating jobs. Soon a new division is born.
Janice’s judgment in this new venture may be clouded. She wants to move quickly and find some area in which she can work independently, free of the straitjacket imposed by her father and the old guard. For his part, her father may want so badly to see his daughter move ahead that he gives her proposal only a cursory glance.
But let’s suppose Janice’s hunch is right, and she turns out to create a successful new business unit. Once again she has demonstrated her capabilities, and now, after four or five years, is ready for another change. “Dad,” she says, “I think I have done a pretty good job managing the new venture. Now I would like to work with you and to have some responsibility for running the company.”
Once again Pac-Woman prevails. The executive vice-president is found to be lacking and is shunted aside. Or the biggest squeeze play of all is enacted and Janice becomes the chief operating officer.
For Janice, this can turn out to be another major non-job. Her problem may be how to communicate with a CEO-dad-who knows only hands-on management. “You set the policy,” Janice exhorts her father. “Leave the day-to-day operations to me. That way we both have a job, and you can begin to take it easier, as you deserve to do.”
Dad nods his assent. But the distinction has eluded him. Five minutes later he is deeply involved in reaching a decision on whether the company should switch telephone companies.
Dad has now gotten a whiff of the dreaded event: He is in danger of being retired by his daughter. Pac-Woman will eventually gobble him up, too. The family notices that he is beginning to get antsy. He becomes obstinate about decisions he makes. He doesn’t let Janice in on what he is planning. And — this is a real shocker forJanice — he starts playing her off against other senior managers.
Janice panics. She realizes that after passing all the tests, it is not certain she will succeed her father. She no longer trusts him, and this distrust at the top spreads rapidly through the firm.
The stage is now set for the final squeeze play. For Janice to succeed her father, he will have to give his full support to the process. There can be no waffling at this late date. Father and daughter must agree on the timing for an orderly turnover of power. Both their future roles have to be carefully defined. Janice will have to assure her father of an important, continuing role. Managing the transition demands lots of communication between the two.
The impact on the organization must also be considered. As the successor moves up the ladder, shifting the balance of power, she is bringing other managers with her — members of her own team. That means there must be higher-level positions to offer them.
If the company is not growing fast enough, creating new top jobs, the Pac-Man and Squeeze strategies become the norm. An “us-against-them” mentality, family versus nonfamily, develops. The young Turks battle the old guard, which starts to present a solid front against all change.
Owners of family companies have to carefully manage Pac-Man and Squeeze strategies, to prevent them from destroying morale in the company. Beyond that, owners must recognize that succession is not just a family affair but affects the entire company. They must develop an overall human resources plan that takes the potential successors into account.
The plan must ensure that there will be some turnover at the top. This may mean owners must balance their loyalty to longtime employees with programs that encourage early retirement and provide outplacement. Another approach is a policy of job rotation in the upper echelons. M & M Mars, for example, routinely rotates managers through the key functions-sales, manufacturing, materials management, and human resources. This produces managers who are generalists, reduces turf wars, and provides flexibility. It also permits young people to move up to senior positions through normal job-rotation cycles.
Managing the emotional issues generated by succession requires a strong commitment to a successful outcome, a thick skin, and the patience of Job. Yet the behavior to be avoided seems simple enough to grasp. Above all, family members have to prevent their own squabbles from spilling over into the rest of the organization. They must pledge themselves to never seek allies for their cause among other employees and to always resolve their disagreements face to face, within the family. A succession plan is never complete unless it anticipates fallout in the company from the children’s advancement.
Peter Davis is chairman of Family Business’s advisor board, and is director of the Division of Family Business Studies at the Wharton School.