Clements is a third generation family business which manufactures specialised tools for the construction industry. There are 80 full-time-equivalent staff, increased as seasonal production requires. In Clements, the third generation siblings were thrust into a sibling partnership when their father died and bequeathed them the business a decade ago. However, the bequest was inequitable – 10% for the daughter and 90% for the son. The business was not in a condition conducive to a positive sale so alternative decisions needed to be made urgently.
John, the older sibling, decided to redress his father inequitable will and give his sister an equal share in the business. Then they tried to work out a strategy to ensure the viability of the family business. John became chairman and CEO but retained an interest in his own professional accounting practice. John had tried to work with his father some years ago but left in utter frustration.
"Twenty years ago my father persuaded me to leave my current employment with the aim of taking over from him. I simply couldn't work with him and there was insufficient call for my skills in the business. When my father became ill in the late 1980s I became involved again, because it was obvious that he wasn't going to be around for long."
Sarah became an active director; when her father was alive she was a director in name only for tax purposes and was kept very much in the dark, consistent with her father's attitude to working women. Her father had taken over from her grandfather and had experienced lean times in the depression which influenced his attitudes in a number of significant ways. The children had never felt they understood their father or that he had wanted to understand their points of view.
Within 12 months of her father's death, Sarah agreed, reluctantly, to give up her public sector position and become human resources manager for Clements. John and Sarah were intelligent, educated young people but neither had the industry experience for Clements and neither was particularly comfortable in their newfound role.
Need for a CEO
John and Sarah recognised their own limitations. John's view was that Clements needed some leadership from within the industry so they sought advice and used a recruitment agency to source an excellent CEO, Bradley, who had knowledge of their company and of its potential within its Australian market. Furthermore Bradley saw opportunities for expansion and export. The prospects were exciting.
After five years of a stabilising period and a formalisation of systems and processes, Bradley presented Sarah and John with an ultimatum: the business needed considerable investment if it was to progress to a level at which it could compete both domestically and offshore. Bradley had perceived that his responsibility was to rebuild the business so the family could make an informed choice about either keeping it as a going concern or selling it. The time for a decision had come.
Sarah and John could not access sufficient funds themselves and would need to extend their levels of debt considerably. Sarah was torn between developing the company for her own sons, the fourth generation, who at that stage were both at university, or taking an easier road, selling the business. John felt that the business might not stay in family hands but he no longer had the energy or commitment to work long hours at his own professional business as well as hold the reins of the family company. He had no children to consider.
- How can the tensions between members of different generations be managed effectively?
- Should children feel any guilt when selling a business which was developed (and maybe established) by their forebears but for which they have no training or commitment to continue?
- Is a sale of a family business a failure? If the wealth from one family concern can be reinvested in the next generation, a 'serial family business' can be created.
The Clements' case is interesting in many ways. It raises a number of issues that we see time and time again in family businesses: a) the death of a business leader who has not planned his succession and the problems it creates for the family as well as for the business; b) the family assets tied into a business with no other exit possibility than selling the business; c) required investment for growth that go way beyond the family's financial capacity and, d) the frustrating feeling to be trapped between a rational call for letting go and the guilt of discontinuing the family legacy. It also illustrates a touching action, the one of a brother who so generously shares the business equally with his sister, a generous behaviour not often seen outside the family business world and which sets the tone for a special and strong working relationship among the siblings.
Tensions between members of different generations can be lessened, or avoided, through open communication, clarity of intentions, and sharing one's own vision for the future.
As far as feeling any guilt about selling the business, my experience shows that it is not a question of whether they should or should not feel guilty. It is a reality of life. Most family members feel guilty as soon as they start thinking about it. Most families feel guilt for a very long time, probably all their lives.
The sale of the family business when it is planned and thought through is seldom a failure, although most families perceive it as such. The ones who do not, in my experience, are the ones I call 'serial business families'. These families make a conscious decision to go back in business together. They need to identify a new strategic direction and make a commitment, but the families who are successful achieve a good balance between business and family needs, boost their entrepreneurial spirit and share enthusiasm and fun.
Denise Kenyon-Rouvinez is associate of The Family Business Consulting Group.
Tensions between different generations can be managed effectively through understanding what has influenced each generation to make certain decisions. The parent in this case came from the "traditionalists" generation and the children in this case were from the baby boomer generation. This was the first generation where child rearing was a pleasure, not a necessity to help with a business or to work in the home. Characteristics of baby boomers include being optimistic and positive, compelled to challenge authority and accept radical change including the movement of women as leaders in the workforce. They believe in growth and expansion, both at home and abroad and feel that they will never grow up, grow old or die.
The first step in effectively managing the differences between these two generations is to achieve a communications dialogue. This means both groups should try to understand the differences in priorities from an age and a cultural standpoint. Traditionalists and baby boomers must also find common ground as far as rewards for work or accomplishments. The reward system is not the same for each group.
The children should feel no guilt for selling the family business when their parent did not have a business succession plan in place and did not provide training on how to maintain the family business. A parent has a responsibility to communicate what is important in life and business and then should listen to the family's wishes. If there are any incompatibilities, the group must learn to accept that what is important to some people in life may not be a priority to others and that the important thing to success in family business is to whole heartedly believe in the direction of the business.
It is not a failure for a family business to be sold. The money could be turned in to another business that would better suit the skill levels of the children where they could be more successful and have a greater sense of accomplishment. Any business that lasts for a long time usually will have to reinvent itself at some point.
Don Bradley is a marketing professor at the University of Central Arkansas.