Family Businesses – Change or Else What?

Once again, Jack Welch and I are communing about common business issues – in this case, the family business. In the May 19 edition of Business Week, Jack and Suzy Welch respond in their Welchway column to a question about the big concerns facing business over the next 10 years.

Jack is a legendary, corporate chieftain but with little experience with family businesses as far as I can tell. Yet, in his response to this question, he is “on the money” when he cites two “fault lines” underlying family business. Thanks, Jack. It’s good to see that you and I have some shared beliefs from our dramatically different vantage points

My experience with family businesses is that the struggle between funding growth and funding retirement is the most vexing and emotional challenge that family businesses face. Moreover, it is one of the big elephants in the room when you discover how few family businesses – less than 10% – make it past the third generation. Jack believes, too, that the emphasis on wealth preservation vs. accumulation could get in the way of funding the growth that is necessary to survive and thrive in a competitive, global environment.

In my family business practice, I see a wide variety of succession challenges but most of them line up as either 1] the current family business leader stays on too long and won’t give the kids – if that’s the right word for men and women in their 40’s – a chance to run the business while they’re in their prime, or 2] Dad and/or Mom are determined for their children to run the company regardless of their interest or capability.

Jack has a similar view about family succession practices. In the vernacular, he’s also worried that the “old man” hangs on too long and the kids won’t wait, but he also frets that the kids may not be the right choice to run the company in the first place. In his opinion, those traditions may have had “acceptable odds of success” in past generations, but those practices may not be suitable in the competitive era we’re currently facing.

Family businesses need to be realistic about evaluating these issues. In simple terms, they need to focus on keeping the “mother ship” strong – the family business – and make sure that business solutions are foremost in their minds as they consider these choices. The alternative – that the business is financially weakened and unable to support the family’s in the ways to which they’ve become accustomed – is a far worse fate.

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