Who takes over the family business may determine its survival
It was always expected that Charles Goldberg would someday work in his family's business. When he was in the seventh grade he wrote an essay about wanting a career in the firm, Cambridge Tire in Cambridge, Mass. As a teen-ager he started out at the bottom, working in the company warehouse. He was 21 when he went to work full time. More than two decades later, he succeeded his father as president of the company.Skip to next paragraph
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A month after being named president, Goldberg quit. He resigned because of ''interference'' from his father, who was then chairman of the board. His father gave him little authority and would countermand his decisions, Mr. Goldberg recalls.
The two men have long since resolved their conflict, and Goldberg is once again president of Cambridge Tire, a company whose roots go back to 1914 when the younger Goldberg's grandfather started a scrap tire and battery business in New Jersey. But for many family-run businesses, the word ''succession'' is synonomous with the firm's survival.
Only 30 percent of the country's family-owned businesses continue into the second generation, says Dr. Leon Danco, president of the Center for Family Business in Cleveland. And with an estimated 2 million family firms due for a generation change in the next three to four years, business wants to know how to keep the family firm afloat.
A number of businesses shut down prematurely because the founder hasn't planned for succession, and in recessionary times small businesses pay a higher price for the lack of planning, Dr. Danco explains. The much publicized takeover of Puritan Fashions might have been avoided had there been better preparation for management succession, he says.
Failure to plan for succession is bound to create worry and hostility within the business, he notes. ''The founder has got to realize he can't take it with him.''
Marilyn Kelly of Kelly Flour, Chicago, said her father was stunned when she told him she wanted to work in the family firm. Ms. Kelly, who is single, says, ''He never expected me to work in the company, though he hoped my husband would.''
Ms. Kelly says she thinks her father put aside the notion of waiting for her to get married to find a successor. ''I think I've helped to liberate him. Only now, I think there is this fear that I might get married some day!'' Reassuringly, she adds, ''Even if I were to get married I'd stay. I could never leave now.''
The younger the offspring is when entering a family business, the greater the conflict is likely to be, says Dr. Renato Tagiuri of Harvard University Graduate School of Business Administration. Naturally, the son just out of business school who steps into the business with his new MBA and tells dad everything he's doing is wrong, is not going to go over well, says Dr. Tagiuri. This is not the time to introduce a son to the business, he advises. The son should work outside the company for a few years and establish a level of success.
Dr. Tagiuri, who conducted an extensive study on life stages and father-son work relationships, says the best time for a son to enter the business is when the father is between 52 and 60.
''The compatibility of this period is due to the father's willingness to teach and support his son, while his son's eagerness to grow is not threatening the father's position.''
Both Mr. Goldberg and Ms. Kelly admit that working for father isn't always easy. But each has been able to reconcile the differences. Mr. Goldberg says he thinks it's important to discuss problems openly.
''My father never allowed anger to fester,'' he says. ''We had a rocky road for years, but we always had a tremendous amount of love and respect for each other; without that we would have never resolved our problems.''
Ms. Kelly says her father did not have the best working relationship with her grandfather. She says her father was too eager to change the way her grandfather did business; she and her father have a better relationship.
Planning is the key to reducing the number of conflicts and smoothing the transition, said Dr. Danco of the Center for Family Business. The founder should make sure his family understands his business objectives, and he should work with qualified advisers.
But planning for succession of the management of the business isn't enough, Dr. Tagiuri notes. ''One has to plan for the succession of the ownership of the business among the survivors.''
He cautions founders against being misguided by notions of fairness. For example, a founder who thinks he should leave his business to all of his children might be making a mistake because not all of his heirs will be interested in it. ''It's like if I have five children and I leave them all the same size shoes, their feet are going to hurt.''
He suggests bringing in only the children who are interested and leaving real estate or stock to the others. ''This way he will be leaving the children different size shoes to fit their feet.''