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There Shall Be No Family Business Coronation

26th August 2015 Robert Holton, Vice President, Private Client Group, Cleary Gull

Thoughts on company leadership transitions and some of the logistical and emotional issues that any transition entails.

Succession planning in any firm should be predicated on a thoughtful and transparent process and most successful transitions involve participants that are not only informed, but passionately engaged. Family-owned businesses must also deal with unspoken assumptions of family influence, both within the family and within the firm. By using some historic examples, we can start a conversation in symbolic terms, in order to get to the important emotional and logistical issues that any transition entails.

A recent summit in Milwaukee focused on successful practices in family and closely-held business and the panel discussion turned to the topic of leadership and succession. John Hunzinger, one of the panelists, has been the CEO of Hunzinger Construction Co. for over 25 years and has successfully built the firm’s reputation as one of the most accomplished general contractors in the Milwaukee area. They are a third generation family-owned business and John’s thoughts on the succession to the fourth generation were particularly enlightening.

Hunzinger Construction has provided construction services on some of the most iconic projects in Milwaukee including Miller Park, Milwaukee World Festival grounds (the home of Summerfest), The Wisconsin Center and helped build the corporate headquarters for CUNA Mutual, Johnson Controls and Harley-Davidson. The company Mission Statement acknowledges they are “steeped in tradition.” And John openly embraced the family tradition of the firm as the discussion at the summit progressed. But a most interesting insight came from a single line. John was in the process of explaining how the fourth generation of the family was educated and gained experience both inside and outside of the firm. He elaborated on the roles and experiences which were allowing them to grow into future leaders. Even with these details on their clear progression, he was quick to add, “I’ve told them ‘There shall be no coronation’. They have to earn the right to lead.”

There shall be no coronation. That simple phrase speaks volumes about setting expectations in family relationships that will ultimately impact the business and it has a couple of important implications.

First and foremost, that phrase implies no one is entitled to a role in the business based on family status. By explicitly rejecting the notion of patrilineal/matrilineal succession inherent in nearly every hierarchic governing system in history, the children realize the leadership of the firm is not a birth right.

Secondly, it sends a clear message to the children that they are not nobility and not entitled to act superior or be treated differently than any other member of the firm. This parenting benefit also reinforces the next generation’s ability to fully mature as individuals within the business.

A secondary implication is the message to the non-family members of the firm that any next generation leadership is predicated on leadership ability, not family lineage. Previous research has shown professionalizing a family-owned firm leads to clear and consistent financial improvements (see Stewart, 2010).

By explicitly removing an assumption of family as leadership, it opens up two mutually beneficial options. A non-family member could emerge as the most competent leader and provide an element of professional management from a non-family perspective. Alternatively, a family member may prove to have developed enough professional acumen and insight as to qualify for the leadership role. Familial ties may allow the firm to rely upon the loyalty of the next generation family leader in important ways. By clearly opening up the path of leadership, a firm stands to create a meritocracy where all members compete to most effectively serve the firm.

In reflecting further on this approach after the summit, it seems there should also be a corollary statement – There shall also be no conscription. For those unfamiliar, conscription is the equally historic practice of forcing citizens of a nation into the service of the army. All the way back to the Code of Hammurabi in 1700 B.C., there are examples of people being obligated to serve the nation under the direction of the king or queen. Just as eliminating the notion of a “coronation”, family leaders may be well suited to eliminate the notion of “conscription”, which in this setting is actual or perceived obligation by next generation members to work in the family-owned firm. Again, by making this expectation explicit there are important implications to the family and the firm.

First, all family members should understand there is no obligation to work in the firm, freeing them to pursue a career which fully realizes their passions and their talents. Families removing a sense of obligation have the added benefit of gaining family members committed to the family-owned business by choice. A sense of obligation to work in firm, which may have been built inadvertently over the years by the leading generation, can lead to a host of unexpected and undesirable emotions from the next generation. There are times when an identical situation is perceived more positively when it is freely chosen. Just consider the physical hardships we endure voluntarily in the name of sports and fitness which would be even more brutal to endure if it was a forced activity. Obligation shifts the perception.

Second, the non-family members of the firm are not subject to a family member carrying an unrealized or unspoken level of resentment. A family member expressing a high level of dissatisfaction with working at the family-owned business, either vocally or through their actions, will inevitable influence other’s perception of the firm. Conversely, a belief that family members work in the firm because they choose, but don’t have to, could have positive implications. It is hard to see a situation where a family member being obligated in the family-owned business will have a positive net effect on the firm.

This sense of obligation exists beyond spoken expectations. Sometimes, the mere history of the firm generates a clear implication for the next generation. The feeling of “I work here, like my dad worked here, like his dad worked here” has a powerful compulsion. By expressing clearly in words and actions that there shall be no conscription may help alleviate those expectations.

Family-owned businesses have some unique issues to account for around succession, but by being clear about expectations, some of those issues can be addressed and planned for. Though some may not favor the historically symbolic terms, the phrase – “There shall be no conscription, nor shall there be a coronation” has the ability to broadcast a leaders intentions. At the very least, perhaps it can jumpstart a conversation about expectations from all parties involved, and move the participants from informed to passionately engaged.

1 Alex Stewart and Michael Hitt, “The Yin and Yang of Kinship and Business: Complementary or Contradictory Forces,” Advances in Entrepreneurship, Firm Emergence and Growth, Vol. 12 (2010), summarizes 32 empirical studies on the effect of family on firm performance, which found professionalizing a family-owned firm may account for the outperformance of publically traded family firms compared to privately held family firm.

About the Author - Robert Holton is Vice President - Private Client Group, Cleary Gull.  For more information visit their website at www.clearygull.com

References:

1 Alex Stewart and Michael Hitt, “The Yin and Yang of Kinship and Business: Complementary or Contradictory Forces,” Advances in Entrepreneurship, Firm Emergence and Growth, Vol. 12 (2010), summarizes 32 empirical studies on the effect of family on firm performance, which found professionalizing a family-owned firm may account for the outperformance of publically traded family firms compared to privately held family firm.

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