Succession planning involves highly personal considerations for family business leaders, but the decisions they make often have a profound impact on many other members of their family and organization.
There's been no shortage of headlines over the years — not to mention a highly acclaimed HBO drama — detailing what happens when potential successors are left in the dark about a matriarch or patriarch's future plans.
Family Business recently sat down with Jason Hecker, leader of Egon Zehnder's family business advisory practice in the U.S., to discuss how family businesses can aim for smoother transitions.
We've seen plenty of high-profile disputes arise when a family business succession plan catches some members of the next generation by surprise. Can you talk about the importance of communication throughout the succession process to ensure that NextGens who think they're next in line don't get blindsided when they find out maybe they aren't?
I think this is one of the most important and overlooked aspects of succession processes. And I think it can be particularly difficult for families. When you think about succession, the reality is it's not just about choosing the next leader, it's about preparing the entire family for the transition.
And when everybody is involved and understands the plan and the reasoning behind it, it significantly reduces the risk. I think that a lot of times the discussion can be about the “when” of succession, sometimes about the “why.” But I think that there's less time spent on the “how” of the communication. And that's what's critical throughout the process.
There are several different elements of it. I think that, for some family businesses, this happens early on, and we encourage it. Family meetings [and] other structures are in place, and these are great platforms that allow potential successors to express their aspirations and concerns and to have transparent communication. This gets rid of assumptions and misunderstandings, and that's what often leads to conflict.
But candid and constructive communication can be difficult.
One CEO I worked with had indicated, “I just don't communicate negative news to my siblings. We keep it positive.” And so, things go unsaid. And that's where sometimes a third party will do work to facilitate a family meeting or a stakeholder discussion, or in some cases to assess one of the next-generation individuals and provide feedback. So, all of these are parts of communication. Part of it is starting really early, but having mechanisms for communication throughout is just as critical.
Obviously, some level of disagreement or conflict in a family business is pretty much inevitable. What can families do to strengthen their ties outside the business so that disputes within the business don't tear them apart?
One of the most fundamental challenges of any family business is maintaining that balance between family and business. And ultimately, for every family I work with, the goal is that they strengthen each other. And I think that's the beauty of family business. But the risk is that they can also tear each other apart if not done well. So, for families looking to strengthen ties outside of the business, I think there's several ways of looking at it.
One is, of course, there are structures that can be really important to create separation. Those include implementing governance structures like family councils to discuss family-related issues, but doing it separate from business matters. That can be really effective. There are other ways, whether you're a family business or not: things like taking time away to be together, celebrating personal milestones and finding a location to convene and create traditions together. So, these are really important.
I think that where it gets more challenging is when the family business gets larger. Everything gets more complex as the business gets bigger and the family expands. I spent time talking to a former chair of a Gen 5 company. They're up to over 1,000 family members. It's very different than in Gen 1 and Gen 2 and bringing people together at somebody's house.
I should say this family that I'm talking about had an explicit shared purpose of the business being in service of bringing the family closer together. So, they embraced the connection. With family retreats, they could bring the different generations together, share perspectives and learn about the business, but a lot of it was just about connecting cousins that might not otherwise feel connected and holding team-building activities.
Now, let's say that a family is already at the point where they're fighting over the succession plan because of some kind of miscommunication or whatever it might be. What can they do to try to find a path forward out of that conflict?
The first thing I'd say — not to sound cheeky — is just that, if done right, steps are taken very early to avoid conflict before it happens. The best time to address it is before — and sometimes years before. But the reality is that families will find themselves in disputes over succession plans. At that time, it's helpful to take a step back and take a structured approach to the path forward.
There are times where the solutions can be simple or straightforward, like being sure there's a clear and aligned success profile for a future CEO role and having transparent processes and communications. But often it's deeper, and there can be a range of factors that can lead to breakdown. We, at the firm, talk about this framework we call “family gravity.” It's about the factors that bind a family together. And that gravity can evolve. So, early on, it may be a bigger-than-life founder and a patriarch or matriarch that the family are all drawn to. But as the business grows and the family grows, what ties and separates families can be much more complex.
So, the framework will look at different things. One would be looking at the DNA of a company. And by DNA, I mean looking at misalignment around vision and values. It could be looking at things that relate to the people — so, for example, the quality of family cohesion or how people interact and how they address conflict or even how information is or isn't shared between people. [The DNA also relates to] underlying structural issues like how decisions are made and how the business is being governed. Any of these areas can lead to a breakdown at succession times, and all of these play a big role in strengthening the gravity of a company. So, they all can positively pull the family together or identify a weakness to address.
[One family business we advised] had common aspirations for the business and for the family, but they shared concerns about how the generations of succession would go. And, based on those discussions, they decided to do something they never expected they'd do: [conduct] a succession process that included internal members of the family, but they also looked externally.
That was a decision they hadn't contemplated at the start. So, make sure you don't assume what the answer is going to be before you go through the process. Sometimes it takes hard work, but it's never too late to do it.
We've all heard of situations where the current gens may be looking at the NextGens and thinking, “I can't trust that they're going to carry forward the vision that I have or that our generation has for the business.” Obviously, carrying on a legacy is a huge part of succession planning, but you can't fully control what happens once you're gone. So, what should current-gen leaders do if they feel that their potential successors in the family don't necessarily share their vision for the future of the business?
We do get this often. The funny thing is, when you mention that, the first thing that comes to mind is the reality that, in this increasingly complex world, most leaders I talk to don't even feel that they fully control what happens before they're gone, let alone what happens to their legacy after they're gone. But the truth is, that legacy is really important. It's on the minds of leadership, and it's deeply meaningful to people.
Often, blood, sweat and tears have gone into the businesses that are built. Sometimes they're trying to carry forward the legacy that was established in the generation before theirs, whom they don't want to let down. The short answer is that, ultimately, the decision surrounding the desired legacy is driven by the people who own the business today.
But we always like to ask this important question: “Why do you want to continue as a family business?” And if family members can align on some aspects of the “why,” I find that it’s much easier to consider a range of these paths forward. The truth is, while a current generation may control the decision immediately, it's important to recognize that the future of the business is inevitably going to be shaped by the next generations. They have unique perspectives, they've got ideas and often there are new realities they're going to have to operate in.
I was a Gen 3 and my grandfather had started a small, modest business — a shoe company called Hecker Shoes. It was around for 50 years and he built it, he ran it. And there was a point where it came time to hand it off to my aunt. The vision for this business had always been around providing premium products to men and women, but also to kids. And one of the company's values was around their care for their employees and their customers. When my aunt took over, the world changed, and there were big-box retailers that came in and changed the structure of the market. She had to compete differently. The vision changed — the company shifted to focusing on shoes for kids — but the values didn't change. They maintained loyalty to the employees and they cared for their customers.
So, I think when there's this disconnect [around the current gen's and NextGens' visions for the business], it's really important to open up an honest and open conversation, which isn't always easy. And what we would encourage the current generation to do is to try to understand the successors' viewpoints and what their aspirations are. But we'd also encourage the next generation to be balanced and to honor and appreciate what got the business to where it is today and what the current generation's hopes and dreams are for the future are as well.