Family business succession: roles and handover

A change in management and a change in ownership do not have to take place at the same time. For joint clarification it is therefore important to know which transitions are actually due and which roles are changing. This raises different questions about responsibility, cooperation and decisions.

Should the company be transferred to family members or sold? Who will take over management, a family member or a person from outside the family? How is suitability determined, who makes the decision, and how are successors prepared for the task? With what vision of the future will the company be continued, and how must it position itself for this?

Two further questions are easily overlooked. Which key people are needed to build a management team that matches the successors' abilities and personality? And how are the withdrawal of the older generation and the introduction of the younger one planned? These questions need their own discussion formats and an architecture for the handover process. It must take into account the tensions between company, family and ownership.

Those handing over, successors and other parties involved may have different ideas about the future. What role does someone want to take on in future? What decisions does the company need? The logic of the family and the logic of the company must be connected.

The wish to settle succession within the family can obscure the view of entrepreneurial and professional suitability. The person handing over often expects a mirror image of themselves, minus their own weaknesses and a generation younger. Nobody can live up to this expectation. At the extremes, the weaknesses of one's own children are completely overlooked, or they are simply not trusted to lead.

Many entrepreneurs also find it hard to let go of their role. Worry about the time afterwards also influences the process, often unnoticed. It helps when the next generation honours the older generation's life's work and expresses appreciation. Those who think in categories of right and wrong or guilty and innocent, on the other hand, block opportunities.

Requirements for the future role, existing competences and necessary development are part of the preparation. People development and leadership development can build on this. Equally relevant are the forms of cooperation during the transition and afterwards.

Several prerequisites support the continued existence of the company after the older generation withdraws. The owners agree and present a united front. There is a jointly supported family constitution and rules of corporate governance. Goals and strategy are clearly described and supported by owners and important managers. Inheritance arrangements have been settled.

The new generation is involved in the reorganisation, prepared for its tasks and can seek neutral advice. Exchange between the generations is agreed and regularly reviewed. Expectations, fears and personal views are expressed openly. The withdrawal takes place in an orderly and consistent way and with great appreciation.

In the first conversation, the starting situation, the parties involved and open decisions are clarified. This also makes it possible to determine which further specialist perspectives are needed for the specific transition. Organisational support is thus coordinated with the other tasks of succession.

In a family-run car dealership group, the senior head wanted to hand over management to his son-in-law after four decades. Everyone was determined, but there was uncertainty about how. Different expectations, unclear responsibilities and personal sensitivities caused the process to stall again and again. This did not go unnoticed by employees and customers either.

Interviews with the senior head, the successor, family members and managers made the points of view nameable. Family, shareholders and company were considered separately, and the contradictions between their logics were described and discussed. A milestone was the clarification of roles in the management board: the senior head remained chairman until his departure, while the successor took over operational day-to-day business.

At the heart of the process was strategy work under the successor's responsibility. Around two years after the start, he presented the company's vision of the future on the day of the handover. The senior head remained connected as chairman of the newly established supervisory board.

A family strategy asks about identity, written and unwritten rules, shared goals and roles in ownership and management. These questions do not have to wait until a specific successor has been identified. A family can clarify what expectations it has of its members, which decisions lie within the family circle and how corporate management fits in.

In addition, the generation handing over and the generation taking over each need a future role. A succession process therefore describes mandates, involvement and the sequence of the handover. Tax and legal questions belong with the respective specialists and are coordinated with family and corporate development.

Family businesses are particularly vulnerable in situations of transition. A transition arises when familiar ways of doing business reach their limits and a fundamental strategic reorientation becomes necessary. Triggers can be economic or family changes. Every transition means a self-renewal of the company and goes hand in hand with sharper strategic positioning. In a family business, the company, the family and the circle of owners are all affected at the same time.

Business succession is one of the most critical transitions, whether it concerns operational management or ownership. Roles change, communication and decision routines are put to the test, new structures are formed. In the family, disappointments and hurt feelings can arise that have to be dealt with. Turbulence is also to be expected in the company, requiring sensitive management.

This results in four tasks. Those involved take stock of how business has been done so far. They examine how the company observes its environment and question previous premises and mental models. They expect concern and fear in the various subsystems and balance these through suitable forms of communication. On this basis they make decisions about the future direction.

Rapid growth and internationalisation are less clearly delimited but equally significant transitions. Leadership structures and leadership cultures that have developed over generations are called into question, and structures sometimes suddenly prove too narrow. The owning family must adjust, for example, to new financing needs and external valuation standards.

The guiding question is how far the planned steps fit the “DNA” of previous forms of growth. Family businesses often align their growth with their core competences. If a different kind of unit is added, for example through an acquisition, it is examined whether the organisation can integrate it and which competences it needs to build for this.

In the family, shareholder and management circles, various circumstances can lead to paralysis and an inability to decide. These include smouldering conflicts, misunderstandings and different ideas about the company's strategic positioning. Blocking conflict patterns can exist in the business family, among the shareholders and in management. They make decision-making difficult or impossible.

To resolve such a blockage, different interests, values and objectives are disclosed and existing differences of opinion are bridged. The views of everyone involved are made explicit, and their feelings are also taken into account. In addition to the factual level, the emotional level is thus included in the consideration. Needs are then clarified and options for action worked out so that all parties gain a clear view of possible solutions.

Once there is clarity for everyone involved, decisions can be reached and their implementation initiated. The aim is a jointly supported solution. The company is then able to act again and can develop further with the support of everyone involved in the decisions. For a succession process this is a prerequisite, because it requires a series of decisions that family, shareholders and management must support together.

Running a family business means managing a family and a group of shareholders at the same time. Each of these three systems follows its own logic. A business decision can be experienced as a slight in the family; a family decision can prove to be a serious mistake in the company. All three systems grow, and complexity grows with them. If a balance is achieved, the company can make full use of “familiness”, the bundle of resources provided by the owning family.

Family business governance refers to a consistent focus on the connection between the three systems. The term covers all measures for steering them in an integrated way. These include a formulated family strategy, which can be reflected in a set of rules adopted by the family, concrete family management, the settlement of contentious issues and routines that connect owners, family and company. In the sense of parallel planning, every solution found is also considered from the point of view of the other systems.

First, membership of the business family is clarified: who plays a role in decisions and processes, and who does not? Clarity is also needed about family values, goals and guiding principles. Communication rules and platforms are established. A set of rules for conflict management contains binding guidelines for action for everyone. It governs how conflicts are handled and is intended to prevent new ones. The family's self-image can be set down in a family charter.

There is no single process for this, because family businesses are very different. The values and goals of family and company are worked out in an individual process. It strengthens the owning family's sense of belonging together and its identification with the company. The result is a cross-generational consensus on the basis of which further corporate development can be determined.