Problems of family business without succession | Fortune

Fights between brothers. Children who rebel against their father or mother. Quarrels that end in court. Here are some situations that easily come to mind when thinking about succession in a family business. But “the reality is not so harsh,” says Alejandro Escriba, director of the family business department at the University of Valencia. Although they grab more headlines and news space and even serve as the subject of television series like the award-winning ContinuityEscriba advocates the “de-dramatization of inheritance” and argues that bloody disputes between parents and children, brothers, uncles and cousins ​​are not common in companies of this type, which make up 89% of the total in Spain and are responsible for 57.1% of GDP , according to the Family Business Institute.

Most family businesses that disappear don’t do so because of succession problems, Escriba says, reasons usually the same as other types of companies, such as no longer being competitive or unprofitable. “Succession is usually more of a trigger that exposes other problems,” says Gabriel Weinstein, managing partner of Olivia in Europe, based on experience working with clients at a consulting firm specializing in organizational transformation.

For his part, Ricard Agustin, founder of consulting firm Family Business Solutions, believes that a generational change in an organization is the right time to “professionalize it” if they have not already done so. In fact, the lack of a management structure with professional leaders who may or may not be family members is the main problem cited by all experts interviewed. “Improving corporate governance is a major remaining challenge facing us in Spain compared to other countries where there are also many family businesses. If it exists, then the change of generations can be better controlled. Likewise, growth and the search for competitiveness can be better managed,” says Escriba.

The lack of formal structure and clear processes means that many decisions are impulsive, according to Weinstein. “There is a lot of intuition and little data. This goes into the process of what we do and we see how to solve this problem. Once time passes and improvisation becomes the way of doing things, standardization becomes difficult. And as the company grows, it’s impossible to sustain it.”

Regarding the lack of structure, Josep Tàpies, who held the chair of family business at IESE between 2003 and 2020, argues that the situation has changed “very quickly” in recent years and progress has been made. “People are well aware that it is very difficult for a company to succeed without professional leadership.”

According to Tàpies, having a governance structure helps avoid another problem that arises in these types of companies: personalism. “We have to work to improve this aspect,” says Escribà, who believes the desire for “absolute control” over the business could be a limitation. “From a professional management perspective, if the desire for control limits the number of alternatives you are going to consider strategically and the analysis and possible actions you can develop, we have a problem. This is when family businesses don’t really develop their competitiveness to the extent they could. And the market does not forgive. If you are not competitive, your business will be destroyed and other companies will take it over.”

In this regard, this personalism, which in some cases leads to a certain paternalism, can work “for a while,” Weinstein says, with leaders who know about the business and it has worked for them. “But the mischief of the founders is no longer enough. Just because a father is good doesn’t mean his children are good.” He also points out that due to personalism, there is a risk of “not hiring qualified people for fear that they will outshine the manager.”

Agustin, for his part, points to those “owners who act irresponsibly” because they “intend that the next generation will run the business, although they are not ready for this role.”

In this situation, you can leave the day-to-day management of the company in the hands of outside experts, leaving the family only on the board of directors. The other option is to sell, a decision Tapies takes away from the drama. “There is absolutely nothing wrong with selling a company on time. Then the property is administered, which can be divided among all family members or divided.” The problem, Escriba notes, is that the company “isn’t competitive enough to be attractive to anyone who would buy it.” Remember also that “many businesses” that began as family businesses continue to exist now through other owners.

Another problem that often arises in family businesses, Weinstein says, is poor communication. “Everything is being prepared upstairs and then perhaps the others will find out. And this is not only between the owner’s family and employees, which creates mistrust due to lack of transparency, but also between family members. And this is where it hurts the most. Because if communication occurs between some participants and not others, jealousy begins to appear.” Regarding this envy, Weinstein comments that we cannot ignore the role played by partners of family members who may not be present in the company but also have opinions. “And that makes this combination explosive. Because it may seem like it doesn’t affect you because you’re saying it in the privacy of your home, but something does.”

Confrontations that can arise due to the different views of the world and business of two or even three different generations are another problem of family business. The solution again is planning, “and above all, having clear rules, a protocol or a family agreement that makes it clear to everyone how the family should relate to the company,” says Augustine.

What usually happens, according to Weinstein: “The past and the future collide. The father has recipes for success that have worked, and the son wants to demonstrate courage and innovate. This is when resistance to change on the part of those who must begin to leave the company becomes dominant. It will depend on the flexibility you allow yourself to explore new horizons.”

While stories about companies that ultimately disappeared due to disputes between family members generate the most interest, experts interviewed agree that most companies “do it very well,” Tapies says, recalling a group of them that are present in Ibex 35.