The Conversation: Succession Is on the Minds of Family Businesses Everywhere
Ever since he was a little boy, Mikel G. has been involved in some way in the family business.
“I’ve grown up working in my dad’s company,” says Mikel, 18 and a high school senior in Georgia, U.S.
Global Blue Trading, the family wholesale company that buys overstock, store returns and liquidation merchandise from big retailers like Home Depot and supplies it to small retailers in the U.S., Central America, South America and the Caribbean for sale to customers, has had a huge influence on Mikel’s future career path.
“I’ve taken four years of business classes in high school and I’m going to major in business administration in college,” says Mikel, who is waiting to hear back from several schools. “I’m going to work in the company while I’m in college, and after college my dad’s plan is to have me there five or six years with him. Once he sees that I’m ready to manage it on my own, he’s going to retire and I’m going to take over full-time.”
Harmony, Unity, Prosperity
Family business, a type of enterprise that is owned and operated by two or more family members and often lasts for many generations, is a powerful force in the world economy.
According to the Wharton Global Family Alliance, a research center at the Wharton School of the University of Pennsylvania, more than half of the private sector worldwide works for a family business and 35% of the Fortune 500 are family-controlled. In the U.S., family-owned businesses are considered the backbone of the economy, accounting for 64% of the country’s GDP or Gross Domestic Product.
Family businesses come in all shapes and sizes, from smaller operations like Global Blue Trading or your favorite downtown pizza place, to some of the largest companies in the world. “Many publicly traded companies that are household names have been controlled by family members over generations,” notes Raphael “Raffi” Amit, a Wharton management professor and academic director and founder of the Wharton Global Family Alliance. “For example, Ford Motor Company is a family business and Tyson Foods is a family business.”
Dr. Amit, who helped forge the partnerships to launch the Wharton Global Family Alliance in 2004, has devoted much of his academic research to the study of family enterprise, meeting regularly with family-owned businesses to discuss challenges and changes in the market. As a result, he has become an extended family member to many corporate executive teams (executive team).
“I work with large families from around the world on the issues they face,” says Amit. “How do you organize and run a business in a way that accomplishes two things – maintaining family harmony and unity across branches and generations, as well as maintaining prosperity and longevity for the business? That is hard to do.” Why? “It can be difficult to disentangle family issues from business issues,” he adds. “They are usually mixed.” That fight you had with your sister yesterday? It will probably influence your family business contract negotiations tomorrow.
“Managing the succession process is really important for both sustaining family unity and harmony, and business prosperity.” – Raphael Amit, Wharton Management Professor
The family business sector is experiencing an important moment in history, says Amit, as the next generation of leaders prepares to take the corporate reins. “We just started the greatest wealth transfer in the history of mankind,” he notes. “Over 30 trillion U.S. dollars will change ownership in the next 10 years.”
Behind that incredible transfer of wealth, which in many cases involves younger family members taking business control from their parents and other family members, lies a critical issue to the success of any family business: Succession.
‘This Is When Problems Come’
Succession (like the HBO series featuring the colorful Roy family’s media empire) is the process of figuring out who will own or run a business after the current company leader retires or passes away. It is the No. 1 challenge facing many family businesses today — and always — especially where younger family members are expected to step into leadership positions. “The most vulnerable time for a family business to sustain itself is when there is transition and succession. This is when problems come,” says Amit. “Right now, succession is on the minds of many family businesses. Managing that process is really important for both sustaining family unity and harmony, and business prosperity.”
And, as the HBO series illustrates, it doesn’t always go smoothly. That’s why CEO succession needs to be a process over many years, not an abrupt decision. “When thinking about succession, we work hard on trying to establish the values and beliefs that family members share,” says Amit. “Before addressing who is going to take on what roles, you first have to figure out the glue that keeps the family together and the aspirations they have for the business. What is the shared vision they have for the future of the business? What is the family willing to do to turn those aspirations into reality?”
Amit suggests that families can help minimize succession drama by introducing children to the family business culture long before they become essential decision-makers. “Many families fail by not exposing their children early enough to the privileges and the responsibilities associated with the family business,” he notes. “Make sure that the children are educated and informed about the business and involved in some way, as a summer intern, for example. Then as they grow up and go to college, involve them in understanding the various buckets, whether they are financial issues or human resources issues, that would come into play later on in their lives as they mature and play a more significant role.”
Mikel, who aspires to run his family’s wholesale business one day, is already well on his way. “I started working at the warehouse when I was younger. I would receive the trucks and write down the merchandise, or I would help offload it,” he says. “Sometimes I would help with selling the merchandise. And whenever my dad has to step out or his manager has to step out, I manage and make sure everything is running well.”
Experts also caution that often children join the family business for the wrong reasons – possibly out of a sense of obligation – and they are not prepared to take on the challenge.
Mikel, for one, says he’s all in and building the skills to succeed as his family’s next generation of business leadership. “I like my dad’s business idea and think it’s really creative what he did,” says Mikel, whose siblings have decided to pursue other career paths. “I want to make sure that his business keeps on and hopefully my son or daughter will take over once I retire. I would hate to see this business go to waste after everything my dad has been through and put into it.”
Conversation Starters
What is succession and why is it top-of-mind for many family businesses right now? Is it always a smooth process? Why or why not?
Do you work for a family business or plan to? Share your story in the comments section of this article.
How can students be better prepared to contribute to and take over the family business someday?
My dad always tells me that to build a family legacy, it takes more than just one or two generations. When people hear “family business”, most of the time they channel straight to thinking about a corporate empire, a well-organized business readied for the next generation to inherit. In my family we are unlike that. My dad has been a businessman for as long as I can remember, but he doesn’t own any brick-and-mortar businesses or corporate enterprises. Yet he survives in one of the busiest cities and largest financial centers in the entire world — San Francisco. My dad, an immigrant from a communist country, has the skill to generate profit out of capital, finding opportunities to change his life. What I would be inheriting wouldn’t be any business. It will be his brokering, financial and investment knowledge, connections with various people, assets that money cannot buy and business courses do not teach.
What an inspiring story! Just like Mikel, family is a part of who I am.
I am the fruit of a blossomed immigrant family. Growing up, my playground was the break room in my parents’ office, and my toys were the outdated prototypes on the bottom of the storage box. Yet what I remembered the most was not the running around through the desks, but the clack-clack-clack typing sound and my dad’s focused eyes. I remember peaking through the door gap and mimicking my dad furiously typing on the keyboard. However, I didn’t know then how much those times have shaped who I am today.
While I won’t be taking over any business like Mikel, I became an entrepreneur on my own, just like my dad. I found myself intensely typing on the keyboard and camping at my desk. Every time I encounter an obstacle, whether it is doubts from adults or complicated financial documents, I recall the determined figure behind the office door that the seven-year-old me saw almost every day. It was the moment I found myself in the same grind mode when I realized my parents have so deeply engraved the grit and persistence in me.
There’s no wonder why family businesses are so prominent, to the point that “35% of the Fortune 500 are family-controlled” according to the Wharton Global Family Alliance. The surrounding environment is irreplicable in any person’s life, much like how important the macroeconomics factors are for every organization. Just like how innovations thrive in the global tech center of silicon valley, being a part of a generational family business often galvanizes a unique business mindset through an atmosphere of security and community. Mikel’s eventual pursuit of his family business is motivated by his long-standing obligation and family pride. And I wouldn’t be who I am today without inspiration from my parents and the environment I grew up in.
It is not the title but the mentality and passion that drives us forward. As I move on in life, no matter what I pursue, I will undoubtedly carry on the perspicacity my parents ingrained in me.
Reading over such what first comes to my mind is the representation of such an issue and circumstance regarding Korean conglomerates, essentially massive family companies. It roots in my interest and free time from watching Korean dramas, but it gets interesting as a person to look into the reality of these companies. It’s almost always a huge contention in the storyline on the inheritance and appropriate handling of such, in Korea, there is even a title of such – chaebols. These companies have the root of the magnitude of power mentioned in the article due to it helping transform South Korea into a market focused with more need to depend on other markets to one thriving and flourishing with global influence to now provide for others – to name some possible notable companies known as chaebols – trying to switch to an electric car, Hyundai, or just get a regular car, Kia, your refrigerador, washer, dyer, television, LG, those are some well known companies, one of the phones one may carry, Samsung, but it extends farther than that. Actually, the company, Samsung as aforementioned currently faces an interesting precedence as the de facto leader, Lee Jae-yong, decided to not pass managerial rights to his children, it comes in the face of the family business held by chaebols having breakdowns concerning inheritance and passing down through the family due to “shareholder activism, stricter regulations, and higher inheritance taxes in Korea.” (Korea Herald) An example is Samsung itself once again facing a 12 trillion won inheritance tax translating to relatively 10.8 billion USD, leading to the recently deceased chairman Lee Kun-hee’s family to sell parts of their art collection to uphold such. It shall be interesting to see how the Korean economy grew and innovated through these family companies face a potentially huge shift as some management migrates out of the family aspect. As these are significant manufacturers regarding heavy industry and technology, these companies may face destabilizing factors in deterring family inheritance, but will possibly allow for easier flow towards fresh and new ideas outside of the family.
As expressed in this article, the idea of succession is one that may be sensitive among many family businesses. When parents run a company that was built up from the ground and nurtured for generations, “younger family members are expected to step into leadership positions.”
As the youngest member of a family myself, I find this to be relatable, as I personally know this feeling of pressure that comes with the prospect. After coming to America, my parents relied on an e-commerce corporation that they built up from scratch. My older sister and I often joke about how they did it, as they came into a foreign country with no experience in its language or business.
Like Mikel, I had hands-on opportunities to experience working in my parents’ company from a young age. Some days of the summer, I would work on their social media platforms, other evenings I would organize customers’ orders. And on weekends, I pursued the role of a photographer, pushing out items to be displayed on the website. However, despite being exposed to the enterprise early on, I had never genuinely considered taking over it until I read this article.
Dr. Amit proclaims, “The family business sector is experiencing an important moment in history…as the next generation of leaders prepares to take the corporate reins.” While this may hold true for the majority of other family businesses, both succession and the future of my family’s is not a concept that we often discuss. Seeing as my parents have never confronted me, nor my sister, about the fate of our family business, I can only assume that they have no plans to pass the company on, acknowledging that my sister and I will aim for something different. Nevertheless, as much as I appreciate their understanding, it is unfortunate to abandon work that is derived from decades of effort.
As one of the only two children that may inherit the franchise, I naturally feel pressured to take it into my own hands. My sister has expressed no interest in taking over the institution and instead has plans to become a fashion consultant. As for me, I have no absolute path for the future yet, with the exception of a spark in business administration. Correspondingly, after reading this publication, I recognize this as something that I may do going forward, intertwined with the family business.
This article has shed light on the critical concept of succession within my family’s business and has helped me apprehend and grasp the steps that I should aim to take in the future hand-in-hand with it. In Mikel’s words, “I would hate to see this business go to waste after everything my dad has been through and put into it.”
There’s no wonder why family businesses are so prominent, to the point that “35% of the Fortune 500 are family-controlled” according to the Wharton Global Family Alliance. The surrounding environment is irreplicable in any person’s life, much like how important the macroeconomics factors are for every organization. Just like how innovations thrive in the global tech center of silicon valley, being a part of a generational family business often galvanizes a unique business mindset through an atmosphere of security and community. Mikel’s eventual pursuit of his family business is motivated by his long-standing obligation and family pride. And I wouldn’t be who I am today without inspiration from my parents and the environment I grew up in.
Do your parents run a family business? Would love to know more about it!