Choosing among siblings - family business

Nation's Business, Oct, 1991 by John L. Ward, Craig E. Aronoff

The family business is an increasingly attractive career choice for the children of business owners--even when more than one child joins the business. Consequently, more families than ever intend to pass on the leadership of their business to multiple offspring.

Our surveys of business-owning families show that 40 percent to 50 percent will have two or more children inheriting the responsibilities of ownership and management.

The challenges of "passing the baton" (see our July 1990 column) are more difficult when several hands stretch to receive it.

The dilemmas can be agonizing as parents ask: How do we select one of our children to be the next president? Can the others accept our decision as fair? Management lore dictates a single "chief," but can't we be the exception to the norm and share ultimate responsibility among siblings?

Favoring one child over another is resisted by parents--and appropriately so. But business owner/managers need to designate their successors. That often means choosing one child for a job of more status, more pay, and more importance. When several children are in the business, this decision is possibly the most troublesome obstacle to succession planning.

Too many parents want to believe that if they don't face the succession issue, it will somehow solve itself or go away.

Others leave the decision of future leadership to the children themselves--rationalizing that the children should make the call since they have to live with it.

A few fortunate businesses can be divided into separate, roughly equal parts, so that each child can have his or her own business. But if you can't split the business into one per son or daughter, how do you make the leadership succession decision?

Here are some of the successful methods that parents have chosen to deal with the dilemma:

Bite the bullet. When the best choice is clear, we typically recommend that the parents appoint the next leader as early as possible.

For example, when the ability of the first child to enter the business is exceptionally proven before his or her siblings get established, it is usually best to make and communicate the decision.

Perhaps the most prevalent succession process in nonfamily companies as "survival of the fittest." The leading candidates compete to prove themselves most deserving.

While few families relish pitting sibling against sibling, delaying the decision or failing to deal with the issue can produce that result.

Early selection allows everyone to have plenty of time to adjust to the choice. The parents are available if needed to attend to any disappointments.

Use your board as a forum. A board with outside, nonfamily directors can provide an objective forum to address succession--both how and whom to choose. The board can:

* Propose job assignments that help develop successor candidates in light of their strengths and weaknesses.

* Define the most important capabilities of the next chief executive, given the company's future strategic needs.

* Assess children's performance.

* Assure everyone--once the decision is made--that the choice of leadership was fair and based on sound business judgment.

This approach to succession is typical in family businesses that have formed effective boards with outside directors. After all, leadership succession is the most important responsibility of the board.

Create a succession task force. The board can be aided in choosing a successor by an ad hoc task force that includes key managers and family shareholders. While the board should assume ultimate responsibility, the task force can anticipate other issues in the succession transition. Since other organizational changes frequently accompany leadership changes, the task force can consider matters such as roles for the departing CEO and how to communicate changes both within the company and outside it.

Get family consensus. The successor evaluation process that the board designs may create an "executive team" of all the family members eligible for succession consideration. The sibling team can jointly assume the leadership of the company. Over time, the "natural leader" of the group will likely emerge--evident to the family, the organization, and the board.

Occasionally, all may agree that the executive team management continue indefinitely.

If interim management by committee doesn't work well or fails to clarify the choice, then the board of directors can step in more actively in the decisionmaking process.

We believe the best result comes when all next-generation family members achieve clear consensus on the choice through a process overseen and reinforced by an effective board.

Whatever succession process is followed and whatever choice is made, the most vulnerable time for the family business comes during and immediately after transition.

No family-business leader can be successful without the support of his or her co-owning siblings or without their commitment to the company's strategy and leadership.

To assure success as well as succession, siblings must develop into a solid team. The company will be no stronger than the bond among the owners.