In our blog looking at who’s best to manage a family owned business, it was evident that the most successful are ultimately those who combine family ownership with professional management. Over time, as the family and the business grows, the stakes become higher and the decisions more complex and sensitive. If you want to ensure the effective stewarding of the wealth your family has tied up in the business and you want to oversee the participation of family members as executives in the business, you need good mechanisms and processes to achieve these goals. The best time to define the rules of problem solving is at the outset, when relationships are strong and in advance of situations occurring. So if you’re going to transition from a family managed business to a meritocratic family owned, professionally managed business, what do you need to consider?
Almost all family owned businesses start off being managed by the family, but over time should you keep it in the family? Before we examine the key issues to consider, a spoiler alert - the most successful are ultimately those who combine family ownership with professional management.
For any family owned business the experience of managing intergenerational transitions is challenging. In our experience supporting several second and third generation family businesses, we believe there are key questions to ask:
The need for changemanagement in a business can come from a variety of directions. Maybe market conditions are shifting, perhaps you need to embark on the next growth stage, or what if the company has become inefficient to the point where it’s very survival is threatened? Whatever the reason, the individuals involved - and indeed the whole group - will find their deep rooted habits and practices impacted by change. As such, looking at the personal dimension is not enough, in these dynamictimes you need to think about the group too.
“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.”
Wise words from a transformational change guru? Not at all. William Pollard was a 19th century English clergyman, would you believe? Someone else who has an intrinsically modern understanding of that principle is Karl Micallef, CEO of Malta-based Classic Group Ltd, a jewellery group also operating in the retail industry specialising in luxury goods. “We’re a family-run company celebrating thirty years in business. We’ve won awards and been chosen to represent Malta in the International Business Awards more than once, yet our past success will count for nothing tomorrow, the way markets are changing so rapidly.”
Established in 1971, Toly had become a global supplier of high quality packaging for the cosmetics industry, yet in late 2013, the CEO, Andy Gatesy, felt the business was stuck with annual turnover flatlined at around €50+m. It was around this time that Andy invited Simon Preston of RISE to take a look and offer his insights. Today, in 2018, Toly is confidently heading for a turnover of €100m and despite the complexity of rapidly changing markets, they can continue to make significant strides into new markets and areas of growth.
In our own consulting practice, we are dealing with a number of family businesses as well as RISE being a family business. Leadership transition, especially between generations, is a very critical step in the journey of a company. Change of leadership always brings countless opportunities to take the company to the next level. At the same time, it creates unnecessary friction in a business, especially when the ownership group and/or CEO feels powerless to constructively address these issues. This can become an elephant in the room, bleeding energy from the management team. When this leadership transition takes place within a family business a whole set of additional complexity is introduced.
How diverse is the community of people that influences your thinking? Do your people have the ability to think and draw conclusions? Can they adapt to changes, and learn quickly? If you can answer positively, you’re likely to have an agile and adaptable workforce, the modern prerequisites for resilience in performance. Maybe you’re already a leader with a collaborative mindset.