Australia: Succession Planning Series: Second Generation Family Business Leader

Last Updated: 17 March 2013

Coming into Second Generation

The first generation family business owner sets the example for others to follow. We all have different capabilities and characteristics of behaviour. Those capabilities result from our genes, the manner in which we have been brought up, our schooling, the people with whom we associate. Within a family where dad is the first generation business owner, the conversation within the family adds to the knowledge and experience of the children about the business. Sometimes the children are asked to assist in the business. All of these experiences give the child the notion of business leadership.

The leadership can spread to the business itself. Some businesses provide great examples of industry leadership. They are often identified as leaders in product development, employers of choice, growth patterns from sales and marketing, modern production methods, technology driven, or in a number of other different ways. It is not always easy to maintain that position of leadership.

A Case Study - The Franklin Family

No two companies are the same and no two families will demonstrate the same characteristics. An example of what occurred in one family will serve the purpose of demonstrating some of the issues in the transition of leadership within the family company.

Jerry came to the city from life on a farm with no formal training other than what he received up to year 10 in high school. Jerry obtained a job in a printing company and was keen to impress his boss. He knew nothing about printing but demonstrated a passion to learn and to please. He brought enthusiasm and a willingness to work even doing the most menial tasks.

Eric and his wife owned the small company and had started the business after a row with his then boss. The business had difficult beginnings, but Eric was adamant that the quality of the work and the service provided to the customers would be of a higher standard that that offered by the competitor for whom he had previously worked. It was in this environment that Jerry learned the trade and the principals of good business.

Eric and his wife were so impressed with the work of Jerry, that when the business had grown, they offered Jerry some shares in the company. Later, when Eric had a health problem, Jerry was invited to manage the business while Eric was unable to attend work. In due course, Eric wanted to retire and so offered the business for sale at a significant discount to its real value to Jerry in appreciation for his contribution to the family business. And so, Jerry acquired his first business.

He quickly recognised the importance of having up-to-date technology for the printing business and invested in new equipment and as the business grew, he employed one of his brothers to assist in the production side of the business. Later he employed his sister to manage the accounts. It was operating as a family business.

When Jerry found a spare minute, he married Julie and later they had three children, two sons and a daughter. The business continued to prosper under the leadership of Jerry. He worked hard, looked after his employees so that they all felt that they were a part of Jerry's family. He had developed in them a sense of pride in their work and the company for which they worked. He employed apprentices and ensured that they were properly trained to be able to produce the standard of work for which the business had become known.

Among his customers, Jerry had developed a reputation for high quality printing work, reliable service and competitive pricing.

Jerry was clearly providing the necessary leadership for this business and the business was actually providing leadership in the industry. His style of leadership was certainly directive and supportive. He knew every aspect of the business and understood the difficulties that workers encountered from time to time and was able to assist and support them through the work issues.

Jerry's business grew and he now employed in excess of 80 employees. This growth meant that he was no longer able to keep up with all of the detail of every part of the business and he employed people in management roles. He used his managers wisely and supported them in their roles and encouraged them to provide leadership to those who reported to them. Here the style of leadership changed from the directive and supportive style, necessary for learning employees, to achievement style where he challenged his managers to achieve the company's goals.

When Jerry's children were able, they came into the factory and helped with some of the unskilled work, including packaging the finished jobs ready for delivery, filing of correspondence and accounts, simple maintenance of machinery. The eldest son, John did well at school. He was in all of the sports teams, became captain of the school firsts in cricket, and was well liked by his class mates. Tom, the second son, was more like his mother. He would fix things when they broke, like his bike. He would also fix John's bike when it was needed and John was willing to let Tom fix it. While John was the team player, Tom tended to be the loner and was content to work on his own. Jessica was a student and threw herself into her studies. Academically she did very well.

The boys came to work in the business. John took a role in sales while Tom worked in production, taking a particular interest in the technology and maintenance of the machinery. In each case, the work suited the personalities of the two boys.

Participation in management

Jerry saw value in involving the two boys in the management decisions for the business and had them participate in management meetings where they discussed scheduling of work, purchase of new technology and machinery, finances, and strategic questions like whether the business should specialise in for example, printing of high volume catalogues. In these strategic questions, Jerry had John look at customer needs for volumes, turn around times required, quality standards, size of catalogues, etc. Tom would look at the technology required to produce these high volume runs and the production methods, paper and other materials required to be stored, collating and packaging requirements. In each case, the boys were required to report back to the management committee.

Transition of Leadership

Jerry had become involved in a number of community activities including the local Rotary Club, he was on the board of two local charities and he was president of the local chamber of commerce.

The business was continuing to grow and Jerry was starting to enjoy the benefits of all his hard work. He continued to enjoy the respect and trust of his employees and his customers. He decided that he would like to reduce his involvement in the business, so he appointed John as CEO and he remained as chairman of the board.

Jerry recognised the significance of the change and before implementing this change he had undertaken an extensive process of consultation with key personnel in the business, his advisers, and a couple of key and trusted customers. This process was as much a testing of the waters, as a conditioning of those people to the proposed change. By the time the change was announced, it was well anticipated by many of the major stakeholders. John had been quietly preparing himself for this change by ensuring that he was fully aware of the various issues in the business, and seeking advice on some of those issues from trusted consultants and advisers.
Shortly after the announcement was made, John called a meeting of the various managers in the business and put each of the issues identified by him on the table and sought their views on the resolution of those issues. His immediate leadership style was participative, seeking the support of his managers. His outgoing personality assisted him in taking the leadership responsibility.

Tom's personality was more of a loner and he was happy to have his brother take on that role. John was appreciative of the support from his brother and worked to ensure that his support would continue. He made sure that his brother was kept informed of developments within the business and was consulted on all proposals for new technology and listened to him on his suggestions for improvements in production procedures.

Jerry's daughter had studied accountancy and business administration. She was employed by a large company in a management role and was very successful in her work. She had no interest in joining the printing business, but did take a casual interest in the growth and development of the business.

An exercise

Here is an exercise. Make a list of the characteristics of leadership of Jerry and a separate list of the characteristics of leadership of John and compare the two lists. The list of characteristics in the first newsletter may assist in the identification of the characteristics and styles. What were the differences to the original leadership style of Jerry to his later style?

As your business grows, is there a need for change in the leadership style and the characteristics of leadership required to achieve the vision and objectives of the business? What are the present requirements for leadership and are those requirements being met by the present leadership?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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