In many of the conversations I have had with the founders of
family businesses, one of the hardest discussion topics is whether
or not they have managed to find a person of equivalent ability to
themselves in the second generation.
Many business leaders have shared with me that their sons or
daughters are "brilliant" having completed their MBA
studies at Harvard, MIT, LBS or INSEAD whilst simultaneously
sharing how they believe their children "think
differently" to them.
So is entrepreneurial talent in the genes? In cases where the
founder steps aside to let their child take on leadership of the
business, has the next generation in question soaked up the ability
to make clear business decisions by just living for 20 plus years
with the man or woman who built the business from scratch? Or is it
actually a mirage?
Many of us tell others that our children are far superior to us
– but do we really believe it? Does the founding entrepreneur
really believe that anyone, let alone his own child, could run
"his" business as well as he could?
In practice, I find it to be a rare case where a founder can
really let go and a very rare case where he does so because he
genuinely believes that his heir has the ability to take his
business from here to the stars and beyond.
Many people have written about the nature of the entrepreneur,
characterising them as a "control freak". I see the
reason they often continue to wield control, despite outwardly
saying they are doing otherwise, is because they are exceptionally
talented, they make the right decisions (more often than not) and
they make good judgement a habit. The question is – does this
habit extend to family matters? Do they use the same criteria for
appointing a family member to the CEO position as they would for a
It is interesting how many founders become 'Executive
Chairman' once their son becomes CEO - why do they do that?
I'm not suggesting that it might be the wrong thing to do, I
just wonder why they do it, and I think it is a good question for
the outgoing CEO to ask himself.
Handing over the reins to the next generation successfully is
all about honesty and open communication. If I was a Formula 1
driver and my son wanted to be one, I wouldn't simply give him
a Formula 1 car and say "there you go" unless I honestly
believed he was good enough.
We would work together on a plan, probably involving driving
school, and then I might buy him a go-kart or a Formula
Ford car and allow him to show me in practice how good he was.
What's more, we would be able to see his talent from the
results, so there would no pulling the wool over anyone's eyes,
least of all my own.
It is important to remember that there is no reason why an heir
should necessarily be as good as the founder. If he believes he is,
too early, or if his parents tell him he is brilliant without
really believing it, there is likely to be danger ahead. From my
perspective, honesty is crucial, however hard for the parents and
children in question.
Practice makes perfect
Practising honest conversation can help to ensure that the
transition of power is a genuine transition and a transition for
However, it must be remembered that there are some lessons that
need to be learned the hard way. Whilst it is not necessarily
desirable for heirs to work their way up all the way from the
bottom, giving them the chance to run a small operating division or
lead a new project – without any interference from above
– can help them develop the leadership skills that seem to
come to the founder so naturally.
My view is that our children need to fail by themselves to be
able to deal with it and learn from it. We know that when it comes
to life generally, but often choose to ignore it when it comes to
The way forward
Others have better discussed how the use of a family
constitution and proper succession planning can ensure that
leadership transitions are a success. These aspects are undeniably
important, but on their own they are not enough.
For the founder, honesty with one's self and others about
the true ability and experience that a family member can bring to
bear is often missed. Likewise, a next generation member really
needs to question his or her motivations for wanting to take on a
leadership role in a family business – in certain cases could
a non-family person be more appropriate? Brilliance is rarely
replicated by nature so don't rely on it - acknowledge the
situation you find yourself in and take whatever steps with your
family you deem necessary.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).