The decision to turn an enterprise into a family business by bringing one's children into ownership or management is among the most profound and petrifying that an entrepreneur can make. Those we know who have faced that decision report sleepless nights and loss of focus.
Their worries are many:
- Will the kids be interested and capable?
- How will other employees react to their joining the business?
- If more than one joins the business, how do I pick the leader?
- Can I objectively evaluate my children s performance?
- What kind of working relationship will I have with my children?
- How do I handle their compensation?
- What if they join and carry on the business out of a sense of loyalty to their parents rather than out of sincere desire?
- What if getting a job in the family business is just an easy way for them to get situated?
- And the biggest fear of all: What if owning a family business wrecks our family's relationships?
Answers to such questions don't come easily. The specifics of each situation vary: the number of children; their ages, personalities, skills and interests; the timing of their entry into the business.
We offer three principles that apply in all circumstances:
1. Don't rush your children to make a commitment.
While you can decide not to involve your family in your business, your children will ultimately determine whether the business will continue as a family business in their generation.
In most instances, we don't believe children can or should be pressured to make such decisions before they are ready, and we discourage statements like, "We have a family business and it's intended for you!"
Rather, as teenagers approach adulthood we encourage business owners to make a statement more like: "We've got a great business here. You're welcome to enter if you wish, after proper education and outside work experience. After you're here a few years, if you decide you d like to make this business your career, we can talk about whether this is something we want to continue into the next generation."
2. Don't procrastinate about communicating decisions, even if those decisions cause disappointment.
Sometimes the situation suggests that there is a "right" answer to the question of future leadership and ownership continuity -- when, for example, one child is obviously suited for leadership and you are convinced the other children are not.
When the answer is clear, we encourage the children s participation in defining their futures. This process is one of thoughtful delegation, not casual abdication. It works something like this:
When the children reach their late teens, initiate a series of family meetings that can continue over months or years. At the outset, describe the situation and make clear that the business and the family are best served by sharing conclusions as early as possible. Then everyone can become settled in their expectations and avoid years of emotional ambiguity and doubt about important career decisions. It hurts to face children's disappointments, but procrastination causes greater problems.
3. Empower your children to accept substantial responsibility for defining the future for themselves.
When the solution is not so obviously clear, we encourage parents to seek the decisions to be faced. Get input from your children about their willingness to participate and their thoughts on how to proceed. Suggest that, as a group, they develop a vision of the future, identifying important questions and studying various alternatives. Usually the first question that should be answered is whom to include in the process. Examples include the children's spouses, children active in the business and nonactive shareholders. Consider seeking guidance from others such as key non-family managers.
After the children have identified questions and examined options or scenarios, ask them to report on their thinking to you. You might also share the young people's views with valued professional advisors or outside directors for their input.
Respond to your children's ideas with guidance and feedback. Offer thoughts on other questions to be considered or alternatives to be explored.
The next generation should present its proposed vision of the future as a basis for generational transition. The greatest obstacle to the success of this process is the natural instinct of parents to make or heavily influence decisions, especially those affecting the family or the business they built. Parents need to work on developing confidence in their childrens thoughtfulness and in their ability to work well as a team.
Empowering each member of the next generation to effect his or her own destiny is a precious gift of trust and faith -- as great a gift as a parent can provide.
What to ask:
- How do we prepare for ownership and what are the responsibilities?
- What will we do if taking over the business doesn't work?
- What family and personal risks should we consider?
- What continuing involvement in the business is appropriate and would please our parents? What are their financial security needs?
- What are the requirements of good business leadership?
- How will we make decisions as a family team in the next generation?
- What do we have to do to be a strong family in the future, regardless of the business?