With the award-winning show “Succession” coming to a close, there is once again a spotlight on what goes on behind the scenes of family businesses, and the complexities that come with making decisions about the future of a family enterprise.
While watching the Roy children and Waystar executives disagree on just about everything, we are reminded that gut reactions from senior leadership can create wide-ranging, long-term consequences for both the business and family relationships. To reduce the likelihood of family businesses ending up like a real-life version of “Succession,” it’s imperative to determine roles and responsibilities, trust the following generation, understand the problem at hand and be open and supportive with the next generation’s failures.
Do Prioritize Ownership over Management
People tend to get wrapped up with top operating roles thinking they hold the most importance within the company, but this is not the case. For private business owners, the owner role is much more important than the executive role. That’s because owners are concerned—first and foremost—with protecting and growing the value of their asset. They appoint everyone from the board down to the executives who are tasked with aligning the enterprise with their vision and those goals.
Once this mentality is adopted, decisions in regards to the future leadership of operating the family enterprise becomes a bit clearer. So instead, the guiding question then becomes, “Who are the best people to protect and grow our holdings, and to run our enterprise in line with our values?” If guided based on that perspective, succession becomes a broader exercise. The options become one of us, some of us or none of us. With increasing size and complexity, many large family business owners find that a non-family member may be the best candidate. As a business becomes more successful, it becomes even more important to distinguish owner from operator – and to continue to prioritize ownership over management when determining future successors.
Don’t Make Decisions for the Next Generation
During succession planning, the elder generation’s job is to start cultivating the pool of potential contributors in the next generation. According to a recent survey of private business owners conducted by Brown Brothers Harriman, 75% cited leadership-related concerns as a reason they might consider selling some or all of the business, including 36% that said there is a lack of strong leaders to take over, but this can be changed if the time and effort is put in to properly prepare the next generation. However, the problem that prohibits this process is that the elder generation often continues to manage from the side, and feels like it is also their responsibility to make decisions about what the right roles are for the next generation, and who serves in them.
Typical considerations in this approach include:
- the elder generation’s belief that they are ultimately the best and final judges of the next generation’s abilities;
- a desire by that elder generation to protect the next generation from unnecessary conflict when competitive dynamics exist; and
- a desire to simply repeat what worked in the elder generation in the next generation.
All of these approaches have the potential to delay conflict, but in the long-run they often make matters worse and deepen divisions in the next generation.
The best approach is leaving the design of governance and how leaders are selected to the rising generation. They will often want the counsel of professionals and the elder generation to help them understand the issues to be considered. But they also have the best grasp of their own generation’s dynamics, and the issues that are important to them as they look to lead together in the future.
When elders try to make all the decisions, they fail to recognize those dynamics and adequately consider how to incorporate them into action. Such is the case in “Succession,” when the next generation, the Roy siblings, constantly look to Logan to make the successor decision. Thanks to (spoiler alert) ambiguity in his decision upon death, the three get an opportunity to reset and collaborate to make the decision themselves. While they don’t engage outside help to identify issues they don’t yet know will arise, they portray a relationship of working together in good faith for a common goal. Ultimately this is what most elder generations hope will happen when they complete a generational transition.
Do Understand What You Are Solving For
Essential to the overall process is that business owners understand what they are solving for in choosing a successor to lead the enterprise. The qualifications for these roles often start with technical skills—whether the individual has leadership qualities, whether they understand the industry, whether they can convene a group to work through difficult issues with limited information and a keen sense of taking risk that is aligned with the shareholders’ interests. These technical qualifications are, of course, important to look for, but there is more that families should be considering. An owner not only should be technically qualified, but they should have the drive and dedication for the business that will motivate them to grow the company in the right direction.
In the case that an owner’s commitment to the business is lacking, the operational skills that they have become significantly less important. This brings us back to the key point of ownership over management. The person who is best fit to lead may not be the same person who is fit to own it. Having this distinction in mind should be at the core of all the decisions that will follow down the line. We see this exact problem exemplified in Season 4 of the show when, with the leading patriarch now gone, the question of who is best fit to run the business causes major tension among family members and executive non-family members. Although the Roy siblings are all interested in the top role, they aren’t necessarily the most fit for the position. Personal vendettas and ambitions need to be put aside to truly consider what will be most beneficial to the business. Also drawn from the same Brown Brothers Harriman survey, 41% of private business owners believe family members make decisions based on personal benefit rather than what’s best for the business. Situations like these are when an understanding of what the ownership role needs in terms of dedication and commitment is the most essential.
Don’t Overprotect the Next Generation from Failure
While identifying the line of succession is critical in the transition of the family business, even more vital is the long-term preparation of the next generation. A harmful commonality that is often practiced by elder generations when bringing up the next generation of leadership is the tendency to overprotect their children from failing. Due to fears of the company being negatively impacted or seeing a member of the next generation fail, elder generations are not typically willing to allow for the next generation to take as many risks as they themselves may have done previously.
Although this is done with good intention, this practice prohibits the next generation from learning and experiencing to their highest potential. This question is then raised, “How do we allow them to fail in a controlled manner?” If the next generation is constantly shot down for their ideas, they will become discouraged and disengaged, which is why people in power must be constantly looking for ways to guide them while also supporting their growth and exploration in their future roles. It is of greatest benefit for the next generation to fail while the elder generation is still alive to support them. The faster they get to failure with support, the faster they learn how to flourish from that experience.
Looking Toward the Future
According to the Private Business Owners Survey, 100% of private family business owners have taken steps to prepare the next generation to take over, but 20% of these owners admit they don’t have a succession plan in place. This further proves the importance of preparing for the inevitable. There are aspects of succession planning that one can’t always prepare for or see coming, but there are certainly best practices that can make for a smoother decision-making process when it comes time to decide on the future of the family business. There is no guidebook on how to navigate the unexpected dynamics that come with family businesses, and the Roy family is no exception.
However, there is a pivotal moment in Season 4 of “Succession” that emulates the true reality of family businesses. The three Roy siblings finally realize that instead of fighting for the top spot, the company would be much better off if they worked together, however fleeting that moment of sibling comradery may have been. Although this seems like a simple lesson, it couldn’t hold more truth to reality. When family business members come together to work alongside one another for the common good of the enterprise, they are also working towards the greater good of their own family. Which, at the root of it all, is what matters the most.
Benjamin Persofsky is Executive Director of the BBH Center for Family Business.