Conflicts in family businesses

7 May 2014. Every family business is bound to face one crucial challenge: its handover from one generation to the next. Whereas 50 years ago, about 70 per cent of all businesses were handed over to the next generation of the same family, this classic in-family management and ownership succession now only concerns about 40 per cent of cases in Switzerland.

Here, the clash of generations manifests itself in a particular sort of way, for what the retiring generation (often the parents) think they are leaving to their children is not identical with what the children regard as the inheritance they are about to accept. Parents focus on their accomplishments and past successes, children on their entrepreneurial and personal opportunities for the future.

Creative destruction

A conflict is thus preprogrammed – and that is all to the good. After all, the danger is not the occurrence of a clash of generations but its failure to take place. A successful future requires an examination of both the past and the future, and answers are needed to a variety of questions such as: what role will the retiring generation still play in the future? Which businesses will still be continued? In what way will the future generation take over the firm and manage it? Do they have the skills required for this task?

In this situation, the retiring generation is more likely to refer to the past, whereas the next generation has to rely on change. Too often, this results in a lame compromise, primarily to ensure that both sides will be able to save face and preserve the family peace both internally and towards the outside. The problem is a lack of creative destruction, a move to pastures new in the context of the succession.

Whereas the retiring generation must clear the way for the necessary change, the young generation must ask themselves frankly whether they have the passion and skills for a successful continuation of the firm. Unlike with previous generations, employees are no longer quite as ready to follow a management simply because of its status.

The new generation can learn management skills but not the passion for an entrepreneurial career in the family business. Possible successors’ interest used to be greater – think of the trend towards jobs for limited periods of time, individualisation and decreasing family sizes.

External successors

In many cases, not continuing to run a family business within the family means that there are other, more attractive solutions to the succession for everyone involved. In such cases, the non-occurrence of a succession is not a sign of failure but one of working markets on which the past and future managements discover the allocation of funds and employees that is most efficient for them.

The opportunities of a successful succession must not be ignored, either. Hardly any enterprise is able to match up to the credibility and corporate culture of a professionally managed family business. Family businesses have a significant competitive edge.

Managerial capitalism, i.e. the control of a firm by its manager, has not borne the fruit that we hoped for. Corporate success is particularly likely when the controlling owners simultaneously assume management responsibility for “their” firm – that is, when somebody is committed to his or her company with their own money and lifeblood. Family businesses have the best preconditions for this, despite – or rather, because of – the clash of generations.

Photo: Photocase / Vandalay