You are going to read an extract from an article about family business. For each question, choose the answer which you think fits best according to the text.
What if you knew that a tornado was set to strike thousands of the country’s businesses. If you ran one of those companies, wouldn’t you start ringing alarm bells to warn your people to prepare?
But listen to the hush emanating from family-run companies in the United States. According to results of a new research project, the senior leadership in fully half of them is set to change hands in the next ten years. And most have no succession plan in place of any sort. Consider too that, according to conventional wisdom, only one-third of family-owned businesses survive a change in leadership. It’s easy to see that many family businesses face a stormy future.
“Many family businesses in America today are in a very fragile position,” says Ross Nager, director of the research project and executive director of the Arthur Andersen Center for Family Business, which cosponsored the study with Mass-Mutual’s Family Business Enterprise. “Few of these companies are prepared for the challenges of transition they face in the near future. Few of them are as prepared as a publicly traded company would be.”
The research, based on questionnaires recently completed by executives at 3,000 family-run companies with sales of more than $1 million, found that 53% of these organisations expect their CEOs to retire within the next decade. The reason is in the demographics, says Nager. Many family-run businesses were founded by returning World War II veterans who are now reaching their late sixties and early seventies. In addition, second-generation leaders of family-run businesses founded before the war are also now reaching retirement age.
Why do so few family businesses develop succession and strategic plans? Nager says the answer lies in the conflict business founders have always faced between being a fair parent and being a sound businessperson. “As a parent, a founder wants to treat the children equally which means dividing the wealth equally,” he says. “But the businessperson knows that the business should go to the most capable, qualified candidate!” Often the easiest solution is to ignore the conflict, never planning for the future.
In addition, leaders of family businesses can be reluctant to retire because their identity is so tied up with the business. As a result, they either put retirement off indefinitely or go into semi-retirement, creating an uncertain, unhealthy environment within the business.
(adapted from Harvard Business Review, May 1998, by Sarah Cliff)