SUMMARY
At a succession crossroads, the key question to ask is: Are family members prepared to be owners of the family enterprise?
At a succession crossroads, the key question to ask is: Are family members prepared to be owners of the family enterprise?
At a succession crossroads, it is common to hear bystanders ask: Who will be the next business leader?
They ask who will lead the family’s philanthropic giving, financial investments, and even who will lead the family itself. These are natural questions about leadership continuity in a family enterprise.
However, these questions overlook one of the most essential roles in a family enterprise: the role of owners. The ownership dimension of succession planning is often considered by families as a legal matter that is delegated to corporate lawyers and estate planners. But ownership is a multidimensional part of a succession plan, and deserves meaningful attention by the family. At a succession crossroads, the key question to ask is: Are family members prepared to be owners of the family enterprise?
The role of an owner is powerful within a family enterprise. Owners make critical capital, investment and risk management decisions regarding the family’s wealth; they decide on the strategic direction of their businesses; they oversee the performance of their company and assets; they protect the family’s values and culture in the enterprise; they choose and oversee talent for important roles (e.g. board members, business leaders, family office leaders, investment professionals, auditors, trusted advisors). Moreover, they typically select their own successors, which gives their branch influence over the enterprise when they are no longer owners.
A job this significant requires a unique set of capabilities and behaviors. Owners need business and financial knowledge, investment and risk understandings, strategy and governance comprehension, talent evaluation skills, and clarity on the owners’ values, vision, and mission, among other competencies. Behaviorally, owners must actively participate in relevant meetings and be able to represent the interests of all owners (not just their own or their branch’s). In the second generation and later, owners must function as a team, collaborate and negotiate together, and communicate with one voice to the board and CEO.
In our work with enterprising families, we encourage families to expand their notion of ownership beyond the legal and financial dimensions. We consider the psychological, decision-making, leadership, and emotional intelligence aspects of ownership to be vitally important. When one’s view of ownership expands like this, two needs become evident:
The best owners are those who recognize that they are not born knowing everything they need to know about ownership. They have a perspective of humility and continuous learning. They typically have curious minds and work hard to understand how to assume their role, including in partnership with fellow owners.
The following three development paths are common among family members who proactively prepare to be owners:
These individuals feel both an obligation and commitment to train themselves to be good owners. More often than not, these individuals do not have corporate backgrounds, and the role of owner can
feel overwhelming or intimidating. Their deep pride for the family enterprise, their desire to be a part of the ownership team, and their appreciation for the benefits of ownership drive these individuals on their learning journeys.
Families sometimes provide customized development programs for family members who are on track to become owners. This helps all family members be exposed to the same information about historical and current aspects of the family enterprise. It also provides a team-unifying experience as family members move through the training together. These programs often start at a beginner level; over time, as the family’s familiarity with these concepts strengthens, the training steps up to intermediate and advanced levels. These programs are typically organized and funded by the family council.
As an illustration, the beginner level of an owner development program may last 1-3 years and include foundational topics such as these, taught in age-appropriate ways:
Once family members are prepared for the owner role, ownership succession requires the eventual passing of:
To prepare for these major ownership changes, meaningful orientation, discussion, and revisiting of agreements are necessary. The following areas, among others, are important to explore with new owners:
Strong owners make strong family enterprises
Enterprising families are greatly aided when they spend adequate time understanding, discussing, and training for the owner role. Avoidance of this preparation can lead to lack of interest, lack of proper understanding, misbehavior, and lack of clarity on the part of management and the board regarding what the owners really want.
Your goal is to develop strong, capable, contributing owners in the next generation. If the next generation in your family is young, you have time to develop them with well-designed preparation programs–but start early. If the next generation in your family is not as young, it is not too late. Fast track the necessary learning and development for the owners.
This is one of the best investments a family can make for its future.