The days where family businesses could afford an amateur approach or a sloppy performance are long gone. In today’s world, having a professional approach and a team of people leading the business, who are skilled and motivated, has become a necessity. Yet I still see many family businesses bringing in family members in the business, in leadership positions, with no experience or skills that would enable them to succeed. Add to that the lack of professional structuring and governance in the family business – a recipe for a perfect storm.
One such common situation is the way family members are brought into the family business. I see this happening frequently – a family member going straight from university into the family business. Many times this person works directly with the present leading family business leader. Notwithstanding the mistakes done and the sloppy behaviour, this family member keeps being promoted and given more power and responsibility.
Non-family employees, knowing that someday this upcoming family member would be their boss, keep their mouths shut—or leave the family business, leading to a drain on talent.
This keeps going on until this family member rises enough in the family business that his or her underperformance and sloppy behaviour start becoming an existential threat to the family business itself. This is when the situation becomes critical. You have a lose-lose situation, a situation in which both the family business is losing, but also this family member, as he/she has been put in a position to fail – as they never worked anywhere but in the family business and don’t have the skills to be a decision maker – leading them to fail and feel lost.
Based on my experience, I see this happening all to frequently, whereby this situation always ends up badly — both for the business and for the individual.
So the question is how can we avoid all this tragedy from happening?
Here’s a quick test to indicate whether a family member is ready to take a leadership position in a family business . If the answer is “yes” to at least four of the following questions, then it is very highly likely that this person is not prepared and by putting this family member in a leadership position you are pushing both the family business and this family member towards failure.
- Has this family member worked exclusively in the family’s business?
- Has this family member worked up the ranks within the family business, gaining experience from the lower levels?
- Has this family member always reported to other family members for most/all of his career?
- Is this family member paid above the market-based compensation for his/her position?
- Has this family member been promoted beyond his capabilities?
- Is this family member’s behaviour often outside the boundaries of acceptable work ethic behaviour ?
The family business, is at the end of the day, a business like so many others. It needs the best persons working within it, focused, determined, skilled and motivated to succeed. Anyone who is dead weight to the business and not performing well, notwithstanding whether he/she is a family member or not, needs to be addressed properly to ensure that the family business performance is not jeopardised. Family business need hard working leaders and not molly coddled individuals playing at being a grown up.
However, beyond family members, the family business needs to have a lot of things in place, to stand a chance of having a successful succession. Succession planning is a long process and not something a business owner starts thinking about when he/she is approaching 70 and thinking it can be sorted in a few months. Thus, for a possibility to have a successful succession, the following areas need to be well oiled:-
- Structure: Is the family business well structured, with a good level of corporate governance and checks and balances, or is it still all dependent on a single person?
- Reporting: Is reporting done in a timely way, whereby all leaders in the family business have access to all data needed to perform their job well?
- Strategic Planning: Is there a system in place whereby budgeting, planning and strategy formulation are all ingrained in the business culture and happening on a regular basis?
Many times, I am engaged to sort succession planning issues at the 11th hour, but to address succession planning, the business first needs to be properly structured and professionally setup up, which is where I excel. Decades of malpractice, cannot be sorted in a few months and sorting bad habits and mismanagement issues needs time. However, it is of pivotal importance to be sorted, unless business owners want to have the next generation inherit a mess of their own doing.