Miguel A Gallo is a professor at IESE Business School in Spain.
In the second of a two-part series on preparing the next generation for a career in the family business, Miguel A Gallo explains why experience and career training are so critical for a future in the family business
In preparing the next generation for a career in the family business, one must distinguish between education, experience and career training. In a previous issue of Families in Business, we discussed education and how it takes on different roles at home, at work and at university. In this article, we discuss the roles of experience and career training.
Experience is the necessary accessory to education. It must therefore bridge the gaps that exist in any formal education. These gaps commonly include matters relating to learning what is specific to the family business itself, such as its key people, its competitive advantages, its competitors, trade-specific business practice and so on, and also those that are most closely linked to basic management skills, such as integration and change.
Good education teaches students to articulate complex business problems. In other words, they need to find out the elements that make up these problems, to identify the cause-and-effect relationships and to propose alternative solutions. But, because a manager cannot normally carry out all the activities identified in this problem-solving process, he or she must delegate and follow up their completion. Progress in these two skills – delegation and follow-up – is the basis for skilled integration, one of the most important qualities of family business managers.
Companies that do not evolve find themselves operating in mature market niches, and companies that do not grow end up losing their chance to build new competitive advantages, especially in the case of companies that base themselves on their youthfulness and the quality of their human resources.
The paths of growth and development, and the need to take these paths in order to be a successful family business, can be learned through education; but knowing how to change an organisation requires experience because the ability to convince sceptics, the ability to teach followers to change and the ability to remove the opposition from the family business – which often includes several family members – is not usually acquired through listening or studying.
The chance to further one's career is one of the main motivations for young managers. Indeed, the chance to further one's career more quickly in a family business than in a non-family business is the main reason that very able managers, who are not family members, stay on.
Any successful career training includes identification of personal qualities to be developed and acquired to give the family business community one's best. It also includes a schedule to be followed with frequent professional assessments.
It is no easy task to put these points into practice successfully. That is why it is so important that human resources management in the family business is carried out by a qualified and experienced professional in the field who is not a family member. The HR manager should be sufficiently competent and dedicated to ensure that no resentment arises between family members and and non-family managers.
Working outside the business
In many family firms it is a common condition that family members must work in another company for a sufficiently long period of time before entering the family business. This is sometimes a difficult condition to meet, but it is highly recommended for several reasons:
- The self-confidence to be gained by the family member who does so;
- The experience of working in another trade sector and in an organisation that may be run on meritocratic grounds or which, at least, has an informal mutual aid structure that is different to that of the family firm;
- Respect from others in the family firm from proving that one can work outside the family business.
Historically, little importance has been placed on training family members to be shareholders and board members. Yet both these positions are of great significance within the family business where, often, ownership is highly concentrated and it is only these individuals who exercise the power to manage the firm. This is perhaps because in many countries, shareholding includes the right to vote in general shareholders' meetings and the right to serve as a member of the board.
As time goes on and the family grows, a greater number of people are or will be shareholders and members of the board of directors. As well as training in legal aspects, shareholders of a company business must have as much in-depth knowledge of it as possible, both its strategy and its organisation, for only then can they objectively take part in the shareholders' assembly and love their company.
Board member training must create a distinction between governance processes and management processes. These processes are often carried out by the same people in a family business. When family members have been trained, renewal of the board of directors can be achieved by rotating family members from different generations.
Case study: APIS
This case describes a real situation that illustrates many of the points made in this article and the last, in terms of how a family can prepare its next generation for working in the family business.
APIS is a family business in Bilbao, Spain, with sales of €90 million in 2002. Although only a medium-sized company, it is one of the leading firms for the component it designs and produces for major automobile OEMs in Europe and the US.
The company was founded by A Inchauspe in 1962. In later years, three of his five sons also joined the company in various positions. Kepas, the second-born and an engineer by profession, was the company's Chief Executive Officer from 1991 to 1999, when he left APIS to start his own company. To fill the vacancy, the company recruited an engineer and MBA with 10 years' experience.
Aitor, the fourth of the brothers, left his computer science studies at the university and joined APIS in 1988 as assistant to the mould design and contracting manager. Ion, the youngest of the brothers, also left his economics studies and joined APIS in 1992 as assistant to the account manager for the firm's largest customer.
In 1994, A Inchauspe, encouraged by his sons, formed a Board of Directors with himself as the Chairman. The other members of the board were his eldest son, who worked as a senior executive in a large automobile components company, his second son Kepas and two independent directors.
One of the reasons for this decision was to further his sons' professional growth. Aitor and Ion, in particular, regretting not having completed their university studies. In 1995, they enrolled on a five-month evening course at a management training school to learn financial and analytic accounting. In 1996, Aitor moved with his wife and two children to Portugal to work as a controller in a company specialising in mould manufacture, 30% of whose equity was held by APIS. A year later, following Aitor's recommendations, APIS's Board decided to sell its interest to the controlling shareholder.
In 1997, Aitor was appointed manager of a plant that had been recently purchased from a German competitor. With the support of the general management and members of the management committee, Aitor was able to manage the plant successfully and was promoted to the committee. The main goal pursued by this promotion was to enable Aitor to develop his co-ordinating skills and attain a broader view of the company.
A year later, at the suggestion of the CEO, the Board of Directors gave him the job of managing the construction of a plant in Mexico. In December 2001, at one of the half-yearly meetings that the independent director had been holding with the senior management, the CEO remarked: "If, for whatever reason, I should leave, I am convinced that Aitor should be one of the candidates to be considered for my job."
A family business with a development and growth strategy is a good place in which to further a career, either as a specialist with high technical qualifications, a responsible manager and skilled integrator, as a member of the board of directors or as an active and responsible owner.
The experiences gained by family businesses, such as APIS, that truly work to train individuals in a career are clear: they provide appealing challenges to the younger members of the family; they attract and keep highly qualified individuals, from both inside and outside the family; they increase family members' commitment to their company and consequently strengthen the unity that is crucial to the success of the family business.