Top 10 principles of family business succession: part two of two

Gry Osnes, editor of Family Capitalism: Best Practices in Ownership & Leadership, continues her discussion of 10 core disciplines based on the research she supervised into the strategic and entrepreneurial approaches taken by successful family enterprises. After her first five principles were explored last week, here are her final five.

6. New entrepreneurship to reinvigorate dynasties

With extensive wealth and a long family history of ownership, and the prestige it creates, the family can become fixated on what the established business provides for the family, and family members involved. While a social position is one of the perks of ownership, it can also become stagnating and rigid. Dynastic families therefore should, maybe more than other family businesses, use assets as leverage for new ventures. Family owners may create spin-off enterprises as opportunities for family members, sometimes leading to a cluster of businesses or ventures that later are incorporated into the main business.

7. Understanding role taking and development

Succession is about designing and creating roles. Successful family owners look at family members' talents and drives, recruiting to fill gaps and build on complementary abilities. To maintain entrepreneurial options or distributed leadership demands an acute and continuous awareness of how to take up roles, negotiate accountability and to communicate about the roles, also when this is changing. In addition, in none of our research cases did the older generation really retire – they created exit roles that were designed around their competence and strategic needs of the business, and what gave them meaning. This arrangement can form part of a distributed system of leadership.

8. Dialogue-dialogue-dialogue: on and about paradoxes

The dialogue between family members and others in strategising has to be able to manage the paradoxes intrinsic to family ownership, between needs in the family and the business. We found a successful family would reframe conflict or rivalry as paradoxes andcreative tension. This would build the family's capacity for innovation and new entrepreneurship.

Such reframing can be tricky and is often slow. Often, innovation is seen as a revelatory experience, whereas in reality it is more a process of resolving, often over a long time period, conflicting needs. It can feel chaotic and be filled with anxieties, beset by the temptation to create a premature solution. Acknowledgement of such tension, maybe even documenting the process for later review, can result in dialogues that lead to innovative ideas on the structure of the ownership, new ventures and the creation of roles.

9. Hybrid governance and “containment”

The main goal for a structure that is created is to create conversations between family members, and others, to enable strategising, to prevent rivalry spiralling out of control and to reframe difficulties as paradoxes that can lead to innovation. Whatever shape and form this has can be unique to the family tradition.

There is always tension between balancing structure and containment with fluidity and innovation. Non-family advisers and leaders often emphasize structure, while entrepreneurial families may feel more comfortable in innovative realm. A family business can often has a board or ownership forum that balances these functions. This is generally good practice, although it is not always advisable to introduce one when tensions are high. Then it can actually fuel the conflicts and it can spiral out of control. At this point an advisor should lead the family into being able to use such structures.

In many European countries, regulations stipulate a family business has a board that formally is in charge of deciding who will be the top executive officer. A family council might be the decision-making forum, possibly with the board in an advisory role. It is important to remember a formal board could have less capacity to strategise the succession, in particular entrepreneurial options and distributed leadership options. In the United States, where there are no such regulations, firms may choose such a hybrid structure.

10. Conflict and rivalry

The above points create healthy strategising that can reduce or help manage conflict and rivalry, which can be accentuated by restriction to a monolithic succession framework. The strategising approach recognises conflicting interests as inevitable, but creates healthy ways of discussing them, and explores new options. Transparency; identifying and addressing the needs of family members, the family as owners, the business's needs and the context, are important. The governing structures should be used for the right processes as they are authorising structures. Everyone involved should be very clear about what their role is, be it owner-family member, adviser, incumbent or candidate for a top leadership role.