Try inexperienced and under-performing family members that you cannot suspend or terminate by reason of birthright.
As a father, you probably hired or even cajoled a reluctant family member to join the business by virtue of his last name and nothing else. Credentials and work experience were never part of any yardstick. Employed family members skipped any formal hiring process. In short, the next gen employment is typically outside the scope of the HR department.
Entrepreneurial parents, usually the father, would routinely blurt a line to the children: “Work hard and help me run the family business so that when I retire in a few years, you and your siblings will eventually take over.”
That’s it. No rules, just a simple crossover from the family to the business system. So when conflict happens, the dispassionate children, predictably manifesting entitlement will end up being rewarded with the 4 P’s –– higher Pay, Promotion, more Perks and Potential windfall (ownership). The consequences of rewarding bad behavior can cause irreparable damage.
One thing is certain though, the end result will undermine the years of adversity and hardships parents spent growing their wealth.
Without very clear and enforceable rules related to business and ownership governance, the business will naturally tilt towards failure. When an internal event like the sudden death and illness of the senior leader happens or an external circumstance like a crisis occurs, the business will end up in jeopardy.
To quote Jaime Augusto Zobel De Ayala, the 8th generation successor of the 184-year old Ayala Group from the Philippines,
“I often remember my uncle Joe’s comment that it was statistically impossible to produce enough highly qualified family members to run the businesses generation after generation. We only have two family members (out of 7 siblings) in the business at this time. My brother and I serve as chairman and president at the holding company and we provide leadership on the boards of the companies within the group. We are involved in the selection of CEO’s and CFO’s, succession, strategic partners and board members. We also participate in major strategic and resource allocation decisions and provide defined leadership through the governance structures of the boards,”
Akin to the spectacular growth of the Ayala Group the past 30 years, the success and growth of an enterprise depends on its ability to attract, motivate, develop and retain outstanding executives who are not kin. Any business with the intention to continue and grow needs executives with a profile matching the business culture, organization, and strategy (Gallo, 1991; Welch, 2005).
In my nine years of governance work in Asia, I have come across senior generation leaders making critical decisions related to succession planning. Steadily gaining traction is the preference of business owners to fully hand over management responsibility to qualified, non-family executives. The rationale, objectives and advantages are many fold:
- They are hired based on talent, industry experience and the value that they can contribute to the organization
- They are metric driven and their KPI’s (Key Performance Indicators) are measureable
- Their compensation is commensurate to their skills
- They are geared to perform on a Quarter to Quarter basis
- They look forward to pre agreed incentives and profit sharing arrangements
- They are also prepared to resign and assume accountability should they perform below expectations
- The engagement is on a professional level and they are driven primarily based on business profitability
- They have an employment contract that is contingent on performance
- Owners look at their employment as an investment rather than a cost driver
- Emotion is irrelevant