Succession in family business

This is not a review of the HBO hit television series Succession. However, what the popularity of the series demonstrates is that family businesses, and the related inter-generational and intra-sibling rivalry, are as powerful and captivating subjects today as they have been throughout history. We can all relate, in varying degrees, to the situations and dynamics faced by families we read about; the difference being that in the case of, say, the Roy family, the stakes and amounts involved were exceedingly high.

Two-thirds of businesses worldwide are owned or managed by families, employing 60 per cent of the world’s workforce and contributing over 70 per cent of global GDP.[1] When a business passes down the line of succession, important factors invariably come into play. Local laws and cultural nuances aside, human nature and family dynamics are similar throughout the world, with ambition, loyalty, pride, ability and jealousy all being thrown into the mix. Finding the balance between wanting a family enterprise to continue under competent management while also giving the next generation the freedom to find their own way can be particularly challenging. In some cases, it may lead to damaging, yet avoidable, consequences, both for the business and family relationships.

Should I stay or should I go?

Inheriting and being part of a family business, especially one that has grown over multiple generations, gives a shared sense of history that drives ambition and innovation. The idea that one is part of the chain of custodianship can itself be incredibly rewarding, encouraging long-term decisions and a desire to play one’s part in leaving the enterprise well placed for the future.

On the other hand, family lore and expectations can be suffocating and constraining. There are apocryphal stories of the founder ‘arriving in the country with five pounds in their pocket’ and interminable reminders of the sacrifices made and how successful they were in business. Some might not have the skills or the desire to continue but feel a tremendous pressure to go into the family business, especially if there are few (or no) siblings.

We are family

Rivalries and jealousies between siblings (some going back to childhood) can cause irreparable damage and even the destruction of the business. This is especially the case in the oft-highlighted transfer from the second to third generation. Here the parents can have an important, mollifying role to play: setting the rules and tone for succession.

For example, Wanda Ferragamo, matriarch of the Ferragamo dynasty, mandated that only one member from each of her six children’s families could be involved in the day-to-day management of the business and all were paid the same. To maintain the wider cohesion of the family, annual meetings were organised to keep all family members involved and informed as to the performance and strategy of the group.

How advisors can help

Generally, those families that have successfully negotiated inter-generational transfers have had a broad framework to allow family members to pursue what they wanted to do. This involves critically evaluating the competencies of those who want to stay in the business and ensuring they have suitable outside experience, avoiding any sense of entitlement. They have also involved non-family members in key positions where necessary. These families also tend to encourage business diversification, providing funding for new ideas that are robustly and independently challenged. They have also created a forum for the wider family to gather, maintaining cohesion or, as the generations pass, a looser form of family history and identity.

Advisors can play a key role in supporting families in navigating this critical area. Family constitutions can set out the principles to be followed both in succession for the business and related areas such as managing the wealth created and philanthropic aims. A constitution’s drafting should be collaborative if it is to be credible and effective over the years and should include periodic reviews. Founders and elder members of the family ought to be encouraged to actively listen to the next generation who, invariably, have been brought up in a more comfortable environment and have a different view of the world through their experiences and peers.

There is no template, but clear communication of expectations and ambitions from everyone should, at least, avoid the extreme outcomes faced by many a failed enterprise.