Passing the Torch: How to Avoid Fumbling the Family Business

By Jefferson Crew – Executive Vice President & Head of Private Banking

Family businesses are the backbone of economies worldwide, contributing significantly to GDP and employment. Yet, when it comes time to hand over the reins to the next generation, many stumble – some spectacularly so. The HBO series Succession might be fictional, but its portrayal of the Roy family’s power struggles offers a cautionary tale rooted in reality. Let’s delve into the pitfalls of passing on a business and highlight best practices to ensure your family’s legacy doesn’t become prime-time drama.

What Succession Teaches Us (Beyond Great Television)

In Succession, Logan Roy’s refusal to clearly designate a successor sets off a chain reaction of backstabbing and corporate sabotage among his children for leadership over family firm Waystar Royco. While exaggerated for TV, it mirrors the real-world missteps:

• Ambiguity Breeds Conflict: Logan’s indecisiveness, which is more a form of manipulation, creates an environment ripe for rivalry. We see siblings Kendal, Roman, and Shiv power battling against each other to win Logan’s favor and take company control. In reality, a lack of clarity often leads to inappropriate attempts to assert control.
• Mixing Family and Business: The Roys let personal grievances dictate business decisions. Kendall Roy, the 2^nd oldest son, believes he should be the heir apparent. Logan initially names Kendall the successor but then reneges, leading ultimately to Kendall attempting a hostile takeover. The ensuing chaos puts the entire firm at risk. Mixing family business and company business can lead to strategic missteps and missed opportunities.
• Resistance to Letting Go: Logan’s reluctance to cede control stifles innovation. Founders who can’t step back may hinder the company’s ability to adapt and grow.

Best Practices for a Smooth Transition

1. Start Succession Planning Early: Early planning prevents power vacuums and ensures continuity.
2. Require External Experience: Encourage family members to gain experience outside the family business before joining. This will give them the opening to do something of their own choosing, and if they decide to join eventually, bring fresh perspectives to the company.
3. Separate Family from Business: Establish clear boundaries. Have family members work in different parts of the company and avoid children who may one day run the company reporting directly to a parent, at least they come up through the ranks. This will maintain professionalism and minimize potential conflicts.
4. Avoid the Fallback Trap: The family business shouldn’t be a safety net. Without relevant experience – especially after a certain age – there shouldn’t be expectations of high-level positions waiting. This policy ensures that only qualified individuals occupy critical roles.
5. Embrace Professional Management: Bringing in external expertise can be invaluable. Non-family executives can offer diverse perspectives crucial for growth.
6. Promote Family Unity: Invest in family-building activities to strengthen relationships and align values. Company sponsored “Gen 3”, or “Gen 4” events and initiatives promote closeness and shared vision.
7. Implement Robust Governance Structures: Clear policies and defined roles prevent misunderstandings. They also reassure stakeholders that the company isn’t at the mercy of familial whims.
8. Promote Open Communication: Regular, honest dialogue can preempt conflicts. Addressing concerns head-on keeps everyone aligned with company goals.

The Bottom Line

Passing on a family business is more than a transaction; it’s a delicate balance of preserving legacy while paving the way for future growth. It requires humility, foresight, and a commitment to the company’s long-term success over personal desires.

Remember, succession isn’t just about naming a successor; it’s about setting them – and the company – up for enduring success. And that’s a legacy worth striving for.