Johan Lambrecht is director of the Research Centre for Entrepreneurship at EHSAL European University College and professor at EHSAL. Jozef Lievens is partner of the law firm Eubelius and professor at EHSAL.
There is very little research on the perfect way for an entrepreneur to hand over the reins of their business to their successor. Johan Lambrecht and Jozef Lievens describe the progressive roles an entrepreneur can assume with their heirs
We all know stories of well-known and less well-known entrepreneurs who have difficulty transferring the daily management of the family business. Some entrepreneurs only abandon the field after an 'unhappy' event (eg, the sudden death of a colleague entrepreneur). Recent research in the US shows that letting go by the older generation and the younger generation taking over the reins are the main concern of the family business. Among the leaders of family businesses, 11% say they will never retire and 23% will only partly retire. About 25% pretend that they want to maintain control until their death.
During the succession process, the transferor adopts several roles towards the successor. From the birth of the children onwards, the transferor will assume the role of an educator. In the period between the end of the studies of potential successors and their official appointment as the new general manager of the business, the transferor reveals himself as a giver of freedom. Following the official discharge of the guard, the transferor adopts the position of adviser.
The transferor as educator
Because of the involvement of the family in the business, family businesses possess a unique collection of means and knowledge. The family holds implicit knowledge, embedded from previous generations. Retaining this knowledge is crucial, because it constitutes the distinctive character of the family business. The transfer of this knowledge takes place from the birth of the children onwards. It can only penetrate gradually into the pores of the successors and consists of knowledge of the business, entrepreneurial characteristics, management values and the soul of the family business. Knowledge of the business is transferred through a playful acquaintance with the family business, through temporary jobs and, gradually, more difficult tasks. Entrepreneurial characteristics (such as perseverance and hard work) are transferred through education and exemplary behaviour. Exemplary behaviour and education are also the 'service hatch' for family values for the management, like honesty, modesty and respect. The soul of the family business constitutes the link between the different generations, and between the family and the business. The family house, the portraits of the different generations, the first name of the founder appearing in every generation are symbols through which the soul is transferred.
During this period the transferor has to watch out for two things. First, the young family members may not experience the family business as a yoke that they want to shake off as soon as they can. They may not feel they are slaves of the family business. When children see that their father is almost never at home, is working through the night and complaining about the business when he is at home, they will probably cast off the business. Second, the children may not have the feeling that the continuation of the family business is their only choice. There may not be coercion. However, building a working knowledge of the business gives the successors and the business a lead, if they decide to join the family business. It feeds their psychological or emotional ownership of the business.
The transferor as a giver of freedom
The transferor acts as giver of freedom when he enables potential successors to gain experience outside the family business. There are several reasons that make a case for external experience for the successors: gaining self-confidence, gathering worldly wisdom, improving professional and management knowledge, winning the admiration of the transferor, avoiding to think the grass is greener elsewhere, gaining credibility. The importance of external experience can also be derived from the life structure of a young adult. At the age of 22-29 years old, they enter into the world of adults and capture a place for themselves in the generation of young adults. During this period, the young adult has to discover, keep several options open and avoid strong commitments.
After the official entry of the successor into the family business, the transferor continues his role as giver of freedom. During their 'naturalising period' in the family business (lasting on average 10 years when the successors have no external experience, 4-5 years when they have worked outside the family business), the successors expand their technical and commercial knowledge about the family business, form their identity in the business, and are prepared for daily management and responsible ownership. Freedom for the successors during the naturalising period means that they are given the necessary breathing room to learn from their mistakes, to discover and to exploit their own responsibilities and to feed their self-confidence.
Why is this freedom so important? In the phase of early adulthood (age 20-40), a human being is physically and emotionally at his height. Shaping a dream and giving that dream a place is one of the main tasks in the novice phase of young adulthood (17-33 years old). In dreams, begin responsibilities. A young adult has the task of trying to realise this dream. They have to build relationships with other adults who can facilitate the realisation of their dream. The transition to ages 28-33 reveals a sense of greater urgency. Life is becoming more serious, more restrictive, more 'real'. They have the feeling: "If I want to change my life, if there are things in it that I don't like, or things missing this is the time to make a start". This thirties transition provides a second chance to create a more satisfactory life structure. This explains why some successors in this age category leave the family business, when the transferor continues to hold them under his thumb. In addition to their personal development successors need freedom to show their competencies within the business and to build their identity. Successors who were given freedom will probably give easier freedom to others.
A number of tensions can arise between the successor and the transferor as a giver of freedom. Tension can result from the limited labour ethos of successors who join the family business immediately without any external experience. Tension can also occur when the successors regard the transfer as a revolution instead of an evolution. Tension arises when different characters and management styles of the transferor and the successor reveal themselves. These tensions ebb away when the transferor and the successor take time to understand each other.
The transferor as adviser
After the transfer of the family business, the transferor can play the role of adviser, which has a semi-official and an official character. The word 'semi-official' denotes that the transferor carries out a number of tasks with respect to the business and to the successor without an official title. He acts then as a sounding board for the successor, takes care of public relations, receives and visits clients, studies the competition. In his official role, the transferor has a title such as member or chairman of the board of directors.
Is it justified and wise that the transferor adopts the semi-official and official role of adviser? The answer to that question is the paradox of letting go. If the entrepreneur can let go, it is better that he is still around. If he cannot let go, it is better for him to leave the business completely. A transferor who can let go and acts as an adviser is advantageous for the business, the successor, the employees and himself. As adviser, he brings continuity and wisdom and towards the successor he is a support and rest, that lightens his loneliness.
When does the transferor start and end his role as adviser? The transferor should make an official announcement as to when he will transfer the daily management of the business. This decreases the possibility of the transferor clinging to his reign. There is no precise age for the entrepreneur to transfer the daily management of the business but it is best done when the transferor is in his sixties. Otherwise, the entrepreneur risks becoming a dictator, an isolated leader who disturbs the continuity of the generations. When the transferor is in his sixties, the successor will probably be approaching the age of 40. From the age of 36-40 years one wants to become his own man/own woman. The most important development tasks include making sufficient progress on the professional ladder, acquiring a bigger measure of autonomy and becoming less dependent on others. This period becomes an ideal stage for successors to take over the daily management of the family business.
It is essential that there is good communication between the transferor and successor during each point of the succession process – to avoid, reduce or eliminate any potential tensions.