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University of Massachusetts Amherst

Family Business Center

Training for Successful Succession

by Shel Horowitz

Frequent FBC presenter Kacie LaChapelle was back for the Family Business Center's October meeting, accompanied this time by Bob Arnold, for a talk entitled "Family Business Leadership: An Ensemble, Not a Solo Act."

They started by pointing out some of the things that make family businesses special: "something to be enormously proud of." Research shows that family businesses, at their best, perform better and more profitably than other structures, achieve higher levels of trust because of shared experiences and values.

85% of North American businesses are family-owned, including 35% of the Fortune 500. They employ half the workforce and create 65% of new jobs.

Yet, only 30% make it to the second generation, and 15% to the third generation-often, because family issues and/or poor planning interfere.

Planning for succession-or the lack thereof-ripples throughout the business and the family. For instance, nonfamily employees worry whether the business will be sold, how it will be to work for a new leader, whether their roles will change, or whether the new leader will bring in a new team.

Meanwhile, the senior generation-or "Master Leaders," as LaChapelle and Arnold call them-may have to think about such issues as choosing among several children, and the effect of these decisions on both the business and the family. As LaChapelle put it, "It's the bottom line in terms of continuing the business-balancing responsibility and power in new ways."

One challenge for Master Leaders, who often are hard-driving entrepreneurs used to having their way, is to open up two-way communication. This means not only learning how to listen well to others, but also sharing one's own issues, hopes, and vision. They should establish policies, business development and succession plans, ownership structures, and, of course, ensure their own and their estate's financial security-but with others' input: "Don't make all the decisions on your own; don't leave the baggage to the next generation."

And Master Leaders should have clear plans for developing leadership in the next generation, including opportunities for the younger managers to learn from their mistakes. They should serve a s coaches and mentors, begin to pull back from the day-to-day running of the company, set up formal structures such as an advisory board as their role evolves.

Meanwhile, the Emerging Leaders-the successor generation-have their own set of challenges. they need to find their own role in the business, and their own career path. they need to make a much more complex web of family relationships function smoothly in the business, moving from a solo entrepreneur model to a team of siblings or cousins. Arnold said, "If relationships aren't good, it can be as difficult and bumpy as anything." Traps to watch out for include "triangling": going to a third party (including a spouse) to complain instead of resolving the problem directly with the other person.

If Emerging Leaders respect each other and their employees, the synergy can be amazing. Arnold called it "1 + 1 = 2300."

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