“One of the biggest fears of the founder generation is conflict.”
The recent announcement in London, Ontario about the listingfor sale of Kingsmills, a fifth generation family-owned department store reminds me again about the challenges of family business succession. Family business succession stories tend to make the news
when things go wrong. This is a story of success: a family business founded in 1865, 2 years before Confederation, which has successfully transitioned through 5 generations within the same family until 2013!
In the U.S. 90% of businesses are family-owned, employing from 2 people right up to Fortune 500
companies. Family businesses account for half of the U.S. employment and half of the U. S. Gross National Product.
Canadian statistics about family business are a little harder to find. I looked at statistics about “small” businesses, businesses which employ up to 100 people. According to a CBC report in 2011 these comprised 98% of all employer businesses in Canada, employing 48.3 % of Canada’s workforce. In 2009, 28 per cent of Canada’s total Gross Domestic Product came from businesses with fewer than 50 employees.
According to TD Waterhouse's 2011 Business Succession Poll of 609 small business owners, just 24 per cent said they had a succession plan worked out for retirement. Of those polled, whether they had a formal plan or not, only 18 per cent expected to transfer it to a family member.
The single biggest issue facing family businesses is succession. For a transfer within the family, the statistics seem to hover around 30% or less for a transition to the second generation, 15% transfer to the third generation and 5% to the fourth generation. In other words it’s the very rare family business that makes it to the fifth generation like the Kingsmill family accomplished in London. According to that TD Waterhouse poll, succession to the second generation is not even expected by over 80 % of those owners.
That’s a large portion of the North American economy relying on family businesses and not a very robust outlook for those businesses to transition successfully past the retirement of the current owner.
What is stopping the majority of family businesses from considering succession within the family? In my experience the roadblock is often fear.
One of the biggest fears of the founder generation is conflict. Many of those family business owners will do just about anything to avoid conflict. The fear of conflict may cause the business owner to avoid succession planning for far too many years, or to close the business or sell it to an outsider when there are family members who would love the opportunity of transitioning into the business.
Two other big fears on the founders’ list are usually loss of control and loss of wealth.
What can help to ease these fears? Good communication within the business and within the family. Tough questions about whether the business can remain viable and the selection or skill of a family successor cannot be addressed unless there is good communication.
A skilled mediator can facilitate the difficult conversations between family members to help the succession planning conversation start. One of the usual outcomes of this kind of mediation is improved communication within the family. Whatever the family members decide to do about the succession, with the establishment of good communication at least they will not be driven by the fear of conflict to avoid decision-making - and that is good for business and good for the family.