Jim, aged 66, is the founding entrepreneur of a successful manufacturing company, with annual sales of $200 million, and has gradually transferred ownership of the business to the second generation. All five siblings, each employed in the company, will eventually own 20% of the business. Apart from their comfortable home, local farmland and $500,000 invested conservatively, all the assets of Jim and his wife Beth have been re-invested in JB Enterprises.
The eldest daughter, Ann, is now 41, and the youngest son is 28. All the sibling partners hold middle management positions. Their compensation is basically the same, regardless of tenure or performance, in order to 'avoid' conflict.
Jim, a successful, innovative entrepreneur, is highly respected in his industry and 'beloved' by his 700 employees. He enjoys 'hands on' work in the plant and continues to provide practical ideas for improving efficiency and quality. He resists sitting at a desk and relies on management to analyse data and develop the strategic direction of the business. Jim is committed to maintaining good employment for the locals in the rural county where his family has lived for generations.
Although a succession plan for ownership has been implemented, the succession plan for management is less clear. Jim still enjoys considerable moral authority, as the charismatic founder and patriarch of the family, and retains ultimate control as chairman and president. Jim has hinted that if anything should happen, he wants his second eldest son, Brad, to take his place, but has made no clear announcement.
Jim and Brad are cut from the same cloth: both enjoy 'hands on' work and a love for hunting and fishing. Both leave the market analysis and strategic planning to others. But Brad lacks the charismatic warmth and business intuition of his father.
Jim's three sons joined the business right after high school and his two daughters graduated from well-respected colleges with business degrees.
Jim has appointed his son-in-law, Ben, as general manager of the company. Ben held significant management positions in major corporations before marrying Jim's eldest daughter, Ann, and has brought strong executive skills to JB. He has also built an effective and creative management team, staffed entirely with 'outsiders', who are paid market rates.
The five sibling partners now meet monthly to improve communication skills, learn about best business practices and build consensus about how they will manage their decision-making in the future. Although hard-working and committed, they doubt that any one of them has the competencies to lead the complex company that JB Enterprises has become.
The partners have developed some criteria for future leadership, knowing that the company is growing rapidly and the industry is changing dramatically.
Although the five partners are aware that Jim favours Brad as the potential leader, they have never endorsed this decision, for fear of stirring up conflict with the eldest son Mathew.
Recently a joint meeting was held with the management team and the family owners.
In the course of the meeting, major differences of opinion on business strategy emerged between the family owners and the managers. It remains unclear how these differences will be resolved, when Jim no longer remains the final decision-maker. If Brad becomes Jim's successor he may find himself out of his depth in dealing with a sophisticated management team, primarily loyal to Ben – and sibling partners that prefer to avoid conflict.
The founder, Jim, seems to be a typical paternalistic founder-entrepreneur. Although Jim has given his children legal and economical ownership, he can't withdraw from psychological ownership. The business needs a committed and talented CEO who can combine the roles of both manager and entrepreneurial leader. None of the potential successors can manage the business the way their father did – not even Brad. Although, with some additional education and business experience, he may eventually become CEO.
The decision to choose the next president and chairman should be made soon. A family business consultant may find a solution, which may involve employing an interim non-family CEO. If they continue to seek leadership from within the family, they should:
- nominate Ann as the next chair of the board, and her sister Susan the next president, because of their business education;
- set up a family council, chaired by Mathew. The role of chair of the family council could be rotated among the other siblings every 2–3 years;
- develop a shareholders' agreement outlining policies for responsible ownership; and
- organise the board of advisers so the majority are non-family representatives who can introduce strategic changes.
Through these decisions, the company can move from a paternalistic to a more professional entrepreneurialism.
Matti Koiranen is Professor of Entrepreneurship and Family Business at the University of Jyvaskyla, Finland and is currently a visiting Professor of Family Business at the Universita della Svizzera Italiana in Lugano, Switzerland. He set up his own family firm in 1986.
This family may be better off selling the business, given the likelihood that conflict will explode when Jim is no longer around.
Several mistakes undermine the future potential of this business. His three sons did not attend university, and all five siblings work in the company with similar compensation, regardless of other considerations. In their attempts to avoid conflict, this family is only postponing conflict. And on top of these issues, Jim's son-in-law is the general manager and has built an "effective and creative management team" that is "primarily loyal to him". This family does not appear willing to consider naming Jim the President of the business, yet he is the one that has developed the authority for leadership within the business.
The five sibling partners meet monthly but how can they build any consensus about decision-making in the future when they do not know who, if any of them, is going to be the appointed successor? It's time for Jim to be clear about his plans, in spite of the persistent fear of conflict that characterises this family.
Jim should focus on planning his succession with the help of outside, objective experts who will provide data to support his decisions. Otherwise, he will endanger the future of the company he has successfully founded and developed. Making a clear decision on succession is going to be a difficult process. Jim's wife Beth may be an important resource for him as he works towards building positive family relationships, regardless of the decisions that are required for the health and survival of the business.
Marta Valls, CEO CORPORACION EMPRESARIAL VALLS, S.A., based in Barcelona, Spain (www.vallscorp.com)