Handing down the family business can be a delicate affair. We've all heard the stories. Parents who won't let go. Children not ready for the job. Dysfunctional relationships both at home and in the office.
The hardest part about having a family business is the challenge of passing it down to the next generation, says Eric Clinton, director of the Dublin City University Centre for Family Business.
He cites research from the Kellogg School of Management near Chicago that about 30 per cent of family businesses will survive from the first generation to the second. Only 12 per cent will survive from the second to the third.
What can families do avoid becoming a statistic? A large part of the answer, it seems, is regular communication about what will happen when the older generation is no longer in charge.
Have the difficult conversations early
“Family businesses are a lot like life, like relationships,” says Clinton. “If you want it to work, you have to work at it.
“My advice is to have the difficult conversations and have them early. Have regular communication. Talking over the kitchen table at 8pm on a Saturday night might not necessarily be the healthy way to do it.”
Preparing the next generation early on in the process is crucial in case of unforeseen events like a sudden illness, he says. If children have to take over earlier than expected, things “can become very dysfunctional very quickly”.
“How do you mentor the next generation into it?” Clinton asks.
“Do they have an adviser? Do they shadow the incumbent? It’s not just about giving the next generation power, it’s about giving them ownership and control and mentoring. They can’t just be thrown into the role.”
Clinton teaches families about the “4Ls”, which are phases of the family business life cycle: learning business, learning our family business, learning to lead our business, and learning to let go of our business.
The first two phases are about apprenticeship.
Clinton says families might bring in rules or a “constitution” that require the next generation to reach a certain level of education and/or outside work experience before joining the family company.
According to the 4Ls, business owners should “learn to let go” through planning: developing a timeline for retirement, creating management development systems and sticking to the plan.
Succession can actually be a breath of fresh air for businesses, according to Clinton, as long as there is a balance between tradition and change.
“Succession is often a time for innovation because the next generation often comes in with new ideas. The next generation gives energy and lifeblood to the business.”
Principles of succession
“Succession issues are probably the most difficult topic because there are no black and white solutions. A wide array of issues could arise in one family,” says Suzanne O’Neill, a partner at Irish accounting and business advisory firm Baker
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Baker Tilly's client base is predominantly family businesses, and O'Neill specialises in succession planning.
Family businesses need a structured approach to succession, she says. The results of a study by Baker Tilly International, which surveyed 1,650 business owners across 55 countries, were condensed in to eight principles of succession.
They are meant to be a practical guide for families.
The eight principles are: 1. Succession is not retirement 2. Start with readiness 3. Set your goals before the journey 4. Price is not first 5. Harmony is a must 6. Plan early, start earlier 7. Equality of, not equal 8. Ask before you get lost.
Family harmony is an important issue on the list, O’Neill says.
“The whole issue of family harmony certainly comes up in dealing with clients. The key requirement in any succession is harmony and open communication. All relevant parties have to be engaged in the process at an early stage.”
She says the owner should bring the next generation on board so they are comfortable with the plan from the start. Owners should also be willing to listen to everyone’s point of view. These are ways to avoid “disharmony”.
Part of the process is identifying the family member or members who should take over the business and to start handing over responsibility so they have the opportunity to demonstrate their abilities early on.
O'Neill calls these "stepping stones" that should be put in place well in advance of retirement. Aoife and Paddy Hayes of CST International 'It wasn't a 'someday this will be yours, my daughter' type thing' CST International is a small, Dublin-based market research agency run by Paddy Hayes (69). His daughter Aoife (33), head of client services, will soon take over, and the pair appear to be getting a lot of things right in their succession planning.
“I started the company about 20 years ago, and it’s my third business,” Paddy says. “So I’m 42 years signing my own paycheck.” But Aoife might sign a few before the end of his 43rd year.
While Aoife began helping out at the office as a teenager, she says her path was not laid out for her. She worked in the arts for a few years and then did a master’s in project management.
Taking over the business became an option after she went to work there full-time four years ago and saw how she could drive the company forward.
Paddy says it was her call. “It wasn’t a ‘someday this will be yours, my daughter’ type thing. It was very much: go to school, go to college, do what you want to do. And then, if you feel it’s something you want, that’s grand.”
CST specialises in guest feedback for the hospitality industry, and Aoife is now spearheading a new aspect of the business: employee engagement research. CST puts together surveys to figure out how engaged a company’s employees are.
“The more engaged you are, the more willing you are to go the extra mile,” says Aoife. “We feel like we’re providing companies with really useful data that they can use to make their businesses more successful.”
Father and daughter talk about the succession regularly, and the handover is about three quarters of the way done. It has happened in stages. This year, for the first time, Aoife went to an important meeting with their largest client without Paddy.
“That was conscious and deliberate,” he says. “But that’s what you have to do, and that’s not easy because I would have loved to be there.
“When you are the founder of a business and you attend these meetings, just by virtue of [your role], you tend to dominate and people tend to address questions to you because you’re the founder of the company.
“If you’re going to give other people space, then you have to give them space,” Paddy adds. “And a way to do that is by not being there.
“She was coming in and working with people who were used to working with me, and that’s tricky. And that’s something she has managed extraordinarily well. She’s extremely good with people . . . So I think she has a lot of the skills that will be needed to take this business where it can go.” Paddy will be available after he steps down, but he says he’s ready to move on. His first book, Daphne Park: Queen of Spies, a biography of a British spy, will be published later this year. He is already working on a follow-up.
“Your early 30s is a super time to take over the running of a business,” he says. “Why wait until your 40s, 50s, 60s? Do it now . . . You have that great combination of energy and drive, tempered with maturity.”
