Family businesses: why successful succession requires a long-term approach
Family businesses face challenges that are shared by all economic players, with potentially negative strategic and financial consequences. They also face challenges that are specific to their nature. On an ongoing basis, but particularly at the key moment of transfer, these fragilities - emotional, financial, managerial, etc. - can accumulate and destabilise the business. Hence the need to understand, anticipate and manage them... This is the analysis of Rania Labaki, Associate Professor at EDHEC and Director of the Family Business Chair.
Family and stakeholders
The definition of the family and its boundaries is not the same for all family businesses. For some, it is limited to members of the nuclear family. For others, it extends to a wider circle. In such cases, it seems necessary to place the family in a stakeholder perspective. The aim is to understand the expectations of all the parties involved, whether 'internal' (family) or 'external' (non-family), because they are the guarantors of a certain continuity and balance between innovation and tradition.
On the family side, who has the right to hold shares, occupy positions of responsibility or even management? Who can and should have a say in the company's future? Communication and open discussion on key issues - while acknowledging the ambiguous nature of exchanges, at the juncture of the private and the professional - as well as an explicit attachment to a shared vision of the past and the future, are essential ingredients (1).
On the employee side, those who have worked for the company for many years may have built a relationship of trust, particularly with the long-standing CEO, to the point of achieving high-level status and special recognition. There is even talk of "psychological ownership" (2). However, the arrival of a new leader is often synonymous with changes along with the appointment of new members in the management teams. This alters the balance, not necessarily to the advantage of these long-serving employees.
To avoid this misalignment of stakeholders, or even a breakdown in the legacy through the emergence of external players taking advantage of vulnerabilities to get their hands on the company, the entire ecosystem needs to be made aware of and prepared for the transfer of ownership. Much more so, no doubt, than in a non-family business.
The transmission: a critical process
In the collective imagination, the family business may appear to be a perfect example of respect for tradition and the inclusion of older generations on the one hand, and the ability to innovate and integrate new generations on the other. Mastering tradition while moving serenely towards the future would be the ideal path.
However, the most critical process for a family business is undoubtedly the handover. Because there are many emotional, relational, psychological and financial layers involved. But also because what is at stake is sometimes the very survival of the business (3). That's why the areas that need to be analysed and worked on for a successful handover are shareholding, management and governance (4).
Two figures obviously have an essential role to play and must be supported to avoid any upheaval.
On the one hand, there is the historical leader, who can adopt a wide range of postures at the time of succession: does he or she announce his or her retirement while remaining very much involved? Does she or he abruptly cut ties with the company? Does she or he hang up his apron while remaining available to provide support and advice, or even launch a new venture?
The successor, on the other hand, also has a wide range of options open to him or her to find his or her place and establish his or her legitimacy, or, on the contrary, to fight a long battle behind the historic figure. An interesting profile is that of a likely successor who, between his studies and the handover, takes distant and personal professional paths, via international careers or entrepreneurial ventures of her or his own (5). Before returning, more serene and better equipped, to the head of the family business.
Before and after succession
Take the example of Biscottificio Grondona, a company over 200 years old, which is a perfect illustration of how to balance innovation and tradition (6). It has introduced new technologies into its packaging processes, but has not changed the quality of the ingredients or the original recipe for its biscuits, for which it is famous. What's more, it has managed to maintain a strong local base while expanding internationally. This shows that continuity is possible, that innovation can coexist with tradition, as long as you constantly work on the strengths and weaknesses of the business. The idea is that succession is less a momentum than one chapter among many.
So what are the best practices for doing this? The key undoubtedly lies in preparing for the handover and being confident in the choices you make for the future.
Upstream, it is important to create an emotional attachment with the new generation of employees and to prepare not only the successor, but also the other stakeholders (customers, suppliers, bankers, etc.). To achieve this, managers need to share and embody their values and their history, and involve everyone "around" this common foundation (7) (8).
Once the baton has been passed, the historical managers, who are not members of the family but are very attached to the company, can also play their part by mentoring or coaching the new manager. Conversely, family members may calmly choose to sell their shares for the benefit of the company or to distance themselves from operations by adopting a responsible shareholder behavior (9).
In fact, there are many family-run businesses that manage to overcome the issues of arising during succession and the search for a balance between past and present, and can see their growth accelerate on a sustainable and long-term basis. The evolution of the Taittinger Group is very interesting in this respect: the company was sold to a group of institutional investors, then finally bought by the new generation. Under the leadership of the new generation, the family business enjoyed one of the strongest growth rates in the Champagne sector, before being passed on to the fourth generation three years ago. This is a fine example of resilience, and intelligent choices and sequencing.
References
(1) Labaki, R., & Mustafa, M. J. (2023). The Family Effect: A Compass for Research on Heterogeneity of Family Businesses in Embedded Contexts. Entrepreneurship Research Journal, 13(3), 533-548. doi:10.1515/erj-2023-0221
(2) Mustafa, Michael, Labaki, Rania and Henssen, Bart. "Psychological Ownership in Heterogeneous Family Firms: A Promising Path and a Call for Further Investigation" Entrepreneurship Research Journal, vol. 13, no. 3, 2023, pp. 631-664. https://doi.org/10.1515/erj-2022-0156
(3) Bernhard, F., Labaki, R. (2016). To Sell or Not to Sell? The Financial and Socio-emotional Dilemma of the Ownership Decision in the Family Business. In: Arora, A., Bacouel-Jentjens, S. (eds) International Fragmentation. International Marketing and Management Research. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-33846-0_8
(4) Introducing “Top Governance Teams”: Towards an Extension of the Family Business Cluster Model. R Labaki, N Feliu - De Gruyter Handbook of Business Families, 2023
Labaki, R. (2022). Lessons from a 350-year-old banking dynasty: C. Hoare & Co. The Henokiens Case Collection. Retrieved from https://www.henokiens.com/userfiles/file/Case_study_C-Hoare-Co.pdf
(5) Canovi, M., Succi, C., Labaki, R. et al. Motivating Next-generation Family Business Members to Act Entrepreneurially: a Role Identity Perspective. J Knowl Econ 14, 2187–2214 (2023). https://doi.org/10.1007/s13132-022-00919-w
(6) Rania Labaki (2023) Lessons from a 203-year-old family business: Grondona, The Henokiens Case Collection - https://www.henokiens.com/userfiles/file/Case_study_Grondona.pdf
(7) Rania Labaki (2021) Historical values, social and environmental responsibilities: The next generation of family businesses is leading the way, Rapport d’étude, EDHEC – The Henokiens
(8) Labaki, R., Bernhard, F., Cailluet, L. (2019). The Strategic Use of Historical Narratives in the Family Business. In: Memili, E., Dibrell, C. (eds) The Palgrave Handbook of Heterogeneity among Family Firms. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-77676-7_20
(9) Labaki, Rania - If I Become a Non-Active Owner, What Are My Rights and My Duties? (2021) in Enabling Next Generation Legacies: 35 Questions that Next Generation Members in Enterprising Families Ask.
Photo de Miguel Á. Padriñán: https://www.pexels.com/fr-fr/photo/photo-de-roue-dentee-doree-sur-fond-noir-3785927/
