Family Business Succession

Research Paper
5 pages (1250 words)
Family owned businesses represent the largest fraction of the world’s economy. For instance, they provide employment to a significantly large group of people across the world. They represent approximately between 65 to 95 percent of the total organizations in different countries (Handler 290). The fact that the family business has long term strategies and their objective of passing the business from one generation to another makes the issue of business transfer more crucial in family business than non-family businesses. Family business succession has become one of the critical issues in the modern family organizations. This is more so in terms of leadership and the management of the firms. In most cases, conflicts arise among the stakeholders on who is supposed to take the leadership in case the leadership positions remain vacant due to various causes. It can also lead to intergenerational conflicts which can also be very critical the existence of an organization. This may affect the overall performance and to some extent the existence of an organization. There are various factors that determine the succession of business from one family member to another. It is important to note that there is a significant difference between intra-family succession and transitions between family and non-family members (Handler 298).

As already noted, family business represents the largest fraction of the global economy. Therefore, they are essential to the well being of the global economy. Poor succession in family businesses can therefore adversely affect the performance of an organization. Many countries like Europe have come up with various measures to make enterprises aware of the importance of having a thorough planning of the succession process in a timely fashion. This is in an effort to rescue family organizations from falling.

One of the major issues in family business succession is the next generation preparation. The long term performance of a family business is determined by the successive generations. Poor performance in one of these generations can adversely affect the long term performance of an organization. Therefore, it is necessary to have an effective strategy to prepare the future generation in order to maintain a high level of performance within an organization.

It is important to note that children will not be automatically willing to be part of the family business. In some cases, children who have grown up in a business may become bored and therefore may not be willing to be successors (ABC Business Consulting par 7). This is one of the reason why there is a need to have a next generation preparation on order to promote the performance of an organization. They may also take the business without seriousness, the fact that may dip an organization to failure.

In order to come up with a top performing generation in a family business, it is necessary to have the young members of the family do simple tasks within the business on part time basis.  This will provide them with insights to the business. It will also help the young generation to understand the business from the bottom up and also gaining a strong work ethic (Lansberg 76). Early age involvement in business activities will also encourage the young generation to pursue higher education in order to take leadership positions in the future.  In preparation for the future generation, it is also necessary to take a family member to work in an outside organization. This will help in broadening training and background. By working in the family business and later working in an outside organization, a family member will be satisfactorily justified to take leadership positions in a family business upon coming back.

There are several factors that must be taken into consideration when preparing for the future generation to join a family business. To begin with, it is highly recommended to have a family member work for another organization before being given a top position within a family business. This ensures that they gain adequate leadership experience. It is also recommended to rotate family members in different positions to discover their skills and interests. A face to face mentoring process is also important in fostering a successful future generation. Promotions must also be based on performance and should be neutral from any form of bias.

One of the main factors that determine the success of family business succession is the ability of an enterprise to have substantial preparation for the transfer process (ABC Business Consulting par 9). However, many organizations have not recognized its importance. This is one of the major factors that are contributing in the failure of many family businesses. Inadequate preparations result into delays in planning activities within an organization. This can significantly affect the performance of an organization and can also affect its long term existence from one generation to another.

Over the past, many family businesses have already undergone intergenerational successions and therefore have adequate experience on the challenges involved in the succession process. Many family businesses tend to have succession difficulties mostly in the initial generations. Thereafter, succession process becomes easier and more efficient. However, it is important to note that new challenges are emerging in the contemporary world and need to be addressed in the succession process.  There is a need for every organization to address these challenges in order to realize an effective succession process.

In the contemporary world, significant changes have taken place. These changes are very crucial to the performance of an organization. For instance, there are major demographic differences between the traditional society and the modern society. In the contemporary world, the nuclear family has a relatively less descendants. Descendants have also become more educated in the modern society compared with the traditional society. Demographic changes have also resulted to many children being unwilling or not available to take leadership positions in their parents’ businesses (White, Timothy and David 72). For instance, since many children in the modern nuclear family are educated, they may have other demanding positions in particular organizations. Therefore, they may not be available to take leadership roles in their parent’s enterprises when the need arises. However, a significant number of parents tend to ignore this fact, the factor that has contributed to failure in many business organizations. This is the reason why there is a need to have a long term preparation in order to avoid any such inadequacies. As a result, these problems may lead to conflicts which will consequently lead to the fall of a business. However, these problems can be addressed by having a well mastered planning, and implementation of critical issues that affects the performance of an organization. In order for a succession process to be effective, certain issues must be put into consideration. These include administrative, personal, financial, economic, personal, employee and stakeholder relations (ABC Business Consulting par 4).

There are also critical financial issues that arise from family business transfers. These involve the matters of paying inheritance, gift tax and indemnifying other heirs (White, Timothy and David 73). In most cases, the family businesses are funded from the family funds or loans. This is opposed to most non-family businesses where funding is mainly from external investments. It is important to note that both the financial, social and cultural aspects of a firm are passed over when a business is passed from one generation to another.  For instance, there is a need to ensure that values like modesty, credibility and honesty which are critical to the performance of a family business are passed to the next generation (Lansberg 36). Such values can be passed gradually through the socialization process. However, it is important to consider the issues of innovation and technological changes talking place. These changes can often lead to conflicts between the young and the older generations. The later generations, tend to embrace innovation and operational changes. It is therefore important to take into consideration such adjustments in order to minimize conflicts and promote efficiency. Many family businesses tend to conserve their original operational arrangements, the fact that may lead to conflicts with the modern generations due to changes that are taking place.

There are main issues that are involved in family business succession that may determine the effectiveness of the process. One of the critical issues is the satisfaction of the family members with the succession process. The ability to come up with a strategy that will satisfy all the family members is important in order to avoid any conflicts in executing the process. The best strategy is the one that takes into consideration all the views of the main stakeholders taking into consideration its impact on the business itself.

Strategies family businesses use to become successful

In order for the family business to be successful, it must be able to practice key success strategies that are crucial in determining its success. One of the main success factors is the ability of a family business to overcome the challenges associated with family businesses. Family businesses are often faced by a number of challenges that can undermine its performance. The ability of a family business to overtake these issues plays a major role in promoting its success.

One of the key success factors in a family business is its ability to address succession issues successfully. In most cases, every member in the family may wait in anticipation on being future leaders in a family business. Development of the future generation in advance becomes a critical success issue in a family business.

Establishment of clear and regular communication methods is also crucial in determining the success of a family business (White, Timothy and David 79). It is clear that differences in opinions are inevitable in every kind of business. This is however minimized through continuous meetings and discussing differences freely in order to solve them.

Division of responsibilities and roles among the family members is another success factor that promotes the success of a family business. Duties and roles are divided depending on what individuals can perform best. Sharing responsibilities helps a family business to avoid conflicts. However, it is encouraged to make important decisions together.

Another factor is its ability to draw clear management lines. This ensures that everyone is responsible and does not in any way interfere with others’ duties. This will also promote commitment. It is also recommended for the family businesses to avoid providing sympathy jobs to the family members. Doing so can lower the overall performance of an organization. People must be employed based on qualification rather than family ties basis.

In most cases, the decision making process in a family organization may be too convergent (Lansberg 78). It is necessary to seek external ideas in order to integrate diversified ideas in the decision making process. This will pave a way for the new ideas that will lead to improvement in the performance of a family business.

From the above discussion, it is clear that family business succession process is crucial in determining its survival. This study reveals that family business represents the largest fraction of the global economy. Their failure can therefore adversely affect the performance of the entire economy. Therefore, it is necessary for all the stakeholders involved to emphasize on importance of effective succession measures in order to promote long term survival of family businesses. One of the main factors that should be taken into consideration is having a substantial preparation in the transfer process. By having adequate preparation, an organization will be in a position to have all the issues solved before the succession takes place. It is also necessary to have adequate next generation preparation processes in order maintain a high level of performance in a family business. It is clear that the long term performance of a family business is determined by successive generations. It is therefore necessary to nurture the young generation by equipping them with leadership skills in advance. This will promote the performance and survival of a family business.

Works Cited

ABC Business Consulting. “How To Run, Grow And Manage A Successful Family Business.Businessconsultingabc, 2008. 1st Dec. 2011.   <>

Handler, W.C. The Succession Experience Of The Next Generation. Family Business Review, 5(3), Fall, (1992).283-307.

Lansberg, I. Succeeding Generations: Realizing the Dreams of Families in Business. Harvard Business School Press: Boston, MA, 1999. Print

White, William., Timothy, Krinke, and David, Geller. Family Business Succession Planning: Devising an Overall Strategy. Journal of Financial Service Professionals 58.3 (2004): 67-86.