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From To Control To Accountability

“It's not my fault that Dad set things up as he did. I didn’t ask for it and if it were up to me, I’d change it. But it isn’t my call.”

The leader of a substantial family business was talking to her siblings and their spouses. All in their 50s, these mostly were experienced business people. They’d recently learned that their octogenarian father planned to leave the company’s voting shares to his daughter, the CEO. “Just as I had ultimate control, my successor must have ultimate control. I’ve done everything legally possible through my will, by having voting and non-voting shares, through our shareholders’ agreement and through trusts, to assure that, when I’m gone, this family and this business will continue to enjoy the same strong leadership that I provided throughout my life. The result speaks for itself,” he explained. Then he left.

The next generation was left in silence. “That’s Dad’s way,” she said. “I appreciate it. I respect it. But its not my way and I don’t think its your way.”

The family nodded its agreement. She continued. “Dad will only let go of control through his will. As long as he’s here, things will be his way.”

“That’s the way its always been,” said a brother.

“Yes. But we can prepare for the day when its our turn. We can agree among ourselves on how we’ll proceed,” she explained.

“You know, inside of the business, Dad’s way is not my way. He has been the boss. That’s what everyone calls him. I’ll never be ‘the boss’ and I don’t want to be. I’m their leader. That’s my way. And slowly, I’ve been able to do things my way in the business.”

“Yeah, but you never know when Dad will assert himself,” said a brother who had left the business.

“He does it less and less,” his sister assured him. “But that’s not my point. It is tough at times....and I need your understanding and support on a personal level....but I’m dealing with the slow transition of executive leadership. Now we are talking about ownership. My point is that my way is the team way. No matter how Dad has structured it, I want us to be a team. Dad believed in maximizing his own freedom and control. Dad saw that as essential to entrepreneurial success. And he was probably right. But that’s not the key to a successful, on-going enterprise,” she said.

“We will always need Dad’s entrepreneurial spirit,” offered a sister-in-law.

“True”, agreed the CEO, “but we need that and more. Now I’m CEO because Dad said so. In the future, I should be CEO because you believe that I’m the best person for the job. Here’s what I propose...'

The CEO brought out copies of a single sheet of paper. She suggested a revamped board of directors including herself, two siblings, the non-family president and three outsiders. The nominating committee would be a sibling, an outsider and the president.

The second generation and the third generation (a dozen college graduates, five of whom worked in the business, four of whom were spouses, all aged 22 to 35) would each meet separately and quarterly. The whole family would retreat at least once a year.

“Transparency and accountability will be the twin foundations of my stewardship of our family business,” she wrote. “I hope they also will be my legacy.”

The transition from the entrepreneurial mode to team-based professional management and ownership is difficult. With the best of intentions, the founder seeks to hand over what he sees as the keys to success. He wants his successor to enjoy the same freedom and control that he used to the benefit of all.

Wise next-generation leaders of growing family businesses who hope that the legacy will continue into future generations, change the model. Even when the founding generations’ ownership model has been given the force of law, many of the best second generation leaders create structures that operate as if he or she did not enjoy control.

“I believe that family business strength grows from an entrepreneurial tradition married to a philosophy of accountability of successors, to an ownership team bound together not just by a mutual desire to increase shareholder value, but also by the love and commitment of a family that shares and seeks overarching goals and values,” she wrote.

There was much discussion. A brother challenged the CEO to translate her philosophy into legal action that would change the trusts and the ownership structure. “In time,” she promised, “we’ll address those things. For now, I just want to know whether you think we’re on the right path.”

All agreed that they were.

 

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