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Keeping it in The Family?

Most businesses start with an entrepreneur who has the idea, the skill and the profession to strike out on his or her own. Natural risk-takers, the founders of businesses, charities or organisations usually have a vision of the future and move heaven and earth to get there. They’re powerful doers, a force of nature. But what about the second and subsequent generations? Do they carry on building or do they sell out and enjoy a different world far away from the demands of running a complex operation? There is a saying “shirtsleeves to shirt sleeves in three generations” meaning that often grandparents are great entrepreneurs and successful business people, but by the time it’s the grandchild has run the business, they’re right back where they started. I’ve seen many examples of that.

Of course you can find examples of both approaches. Perhaps the prime example of continuing success is the Rothschild family. From a middle European ghetto, the founder carved out a hugely successful banking and financial business. The family spread to France, the UK and other key countries, and by the 19th century they were lending money to Disraeli to buy the Suez Canal. The Rothschild ‘intelligence system’ was far more effective than most governments’ amateur spying departments.

But it can be quite a roller-coaster, as demonstrated by an American pharmaceutical company with a 100-year history. The founder was a Mid-West pharmacist who had fought on the Union side in the US Civil War. He built a manufacturing business concentrating on financially sound quality (a welcome change in the wake of the mass manufacturing of the period). The second generation built upon the foundations and began R&D, but did not have the great vision – perhaps the inevitable anti-climax. But the third generation saw the need for vision after this stagnation and really took the business forward with a fertile period of research resulting in breakthrough therapies including oral contraception.

The business grew internationally and became a major US multinational. It reached its peak but the fourth generation were determined to be more successful then the father. Lacking new drugs they diversified into all sorts of science-related industries and hospital supplies. Previously sheltered by high margin projects, they could not cope with the diversity and the lack of profitability. So, in the 1970s they hired Donald Rumsfeld to sort it out! He divested all the non-pharmaceutical entities and made the business ready for sale to a truly global player, and the family quietly slipped away to their estates and golf courses. What the founder would have said, we will never know.

Many family businesses use their very nature as their strength, but occasionally there will be a member who isn’t quite right. Often this person is given a role where he or she can’t do much damage – the wasted money is preferable to a disastrous manager or a family break-up. Bringing in a non-family CEO or business manager can be a big step, but may be vital if the family directors can’t see the wood for the trees. In the end, money talks, and if the figures aren’t increasing or are falling, it’s time to ask why or find someone who can see why.

How do you bring the next generation into the family business?

  • So many small businesses revolve round one person and clients don’t like change. Although the pace of business life is frantic these days, the keyword in handing over is “slow”. Introduce the family member and your clients to each other over a long period of time, so clients are comfortable with the transition.
  • If you plan to bring a family member in to help run the business be honest about your plans with other staff members as early as possible to reduce and manage resentment.
  • Appointing a mentor for the family member during the family member’s training period may be helpful.
  • A depth and breadth of knowledge is vital, so allow plenty of time to develop, practice and correct skills.
  • Show your family member how you communicate with clients, but don't let your son or daughter manage clients alone until he or she has a serious knowledge of the business. One business founder suggested allowing three to six years to develop the contacts.
  • After acquiring the basic skills, allow the family member to run his or her own area over a number of years, so you can assess and correct strengths and weaknesses.
  • When the time comes to hand over, accept that your family member will do things differently. If the ideas proposed are sensible, well-researched and well-thought through, let them get on with it. While you can act as a sounding board, interference from out-going parents causes confusion and problems.

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