Family businesses by their very names are often seen as automatically being gifted to the heirs apparent; however is the heir the best person for the job? Are there other family members better suited for the position? Or perhaps the best way to maintain and grow the family wealth is to look for another option entirely? In the following article I review the transitional arrangements of a non family leader, the benefits and some of the best ways to go about it. David Harland – one of Australias leading authorities in family business sector.
Family business leaders typically have three choices when developing transition plans — sell the business entirely, pass ownership and management to family heirs, or allow the family to retain ownership but not management.
There are many situations that could lead a business owner to consider transitioning to a non-family leader. A very common situation is one in which few family members are involved in the business. In such a situation, some owners would sell the business, but others would consider the fact that keeping a business in the family can yield more wealth for future generations than would from the proceeds from a sale. Other families may have members of the next generation working in the business, but have no clear candidates that possess the requisite skills to be a chief executive.
Successful family transition plans acknowledge the abilities and passions of the next generation. Sometimes that may mean a child or relative takes on an executive or creative role within the business, but leaves management to a non-family executive. Still other families might have the opposite problem — a stable of bright young potential leaders to choose from, but no way to make a choice between them without dividing the family. Outside management can provide a solution without creating rivalry and family divisions. Family businesses have particular challenges when developing the next generation of leaders. In some family groups, seniority, rank, or gender can be confused with leadership potential. Entrepreneurial founders can find it difficult to train the next generation in management and leadership skills, and birth order between siblings can create rivalries and entitlement issues.
Non-family business managers can bring many advantages to a family firm. While family businesses often prioritise the employment of family members, outside employees can bring professionalism and industry experience that family members may lack. In a situation where a business owner is ready to retire but a new leader is not yet mature, a professional manager can provide bridging management and mentoring until the future heir is ready to take over.
One of the major benefits of non-family executives is that they may see the business in a different light, one not burdened by family expectations and ‘how things used to be’. This detachment makes it easier to make the changes a business needs to be successful in the future.
In most businesses, there are experienced non-family executives who are already working in the business and could be a good choice to manage the firm. Non-family executives may worry they will be overruled by family members or eventually replaced by a less-qualified relative.
A formal transition plan should include financial incentives and contingency plans around eventual disagreements. Be sure to include family members in the planning process to minimise problems later.
As with any transitions to a new leader, it is critical for a non-family manager to work closely with the family, and other key stakeholders to develop both a transition plan and a long-term vision for the future of the business. Family business councils and executive boards should also take an active role to ensure that family wishes are considered in business decisions.
Non-family managers can make great leaders for a family business, but, ultimately, every business is different and transition plans must take into account the specifics of your family’s situation. Whatever the circumstances, when owners decide that preserving a successful business for their children is the best legacy they can leave behind, they need to begin the process of choosing the next leader and develop a plan for future success.
After Advice on Family Business Transitions? Contact FINH on 07 3229 7333