In our country, thousands of family SMEs were created in the past 50 years. Some of them made the transition to the next generation and others were just limited to the working life of their founders. As in any company, there are many types of family businesses with very diverse types of organization and management. For this reason, it would be better to talk in plural about FAMILY BUSINESSES. However, despite this variety, there are repeated features that allow for generalizations. 

One of the major advantages of family businesses is the faithfulness and commitment of its members: the name and the family are involved in the project. Nevertheless, this value can be a disadvantage when the existing tension between a Business and a Family is not adequately regulated.

A family business has interests and objectives that are often opposed and in conflict with one another. Once this fact is accepted, it is possible to regulate the potential for conflict, taking into account the different situations that may increase or decrease it. 

When we start to think about the fate of the company, the interests and desires at stake are varied and legitimate: the profitability of the company, the family money, the personal projection, the family history to name just a few. 

The decisions taken at this point will influence the company as a commercial organization and in the working and personal life of all those who in one way or another are involved with it. They will also have an impact on the fate of the family relationship. 

The transition from one generation to another begins with the contact of the children with the company (sometimes at an early age), and it is a long process in which both parents and children think about the company and the different roles or positions that each of them could occupy. The possibility of realizing this transition will be connected to the way in which the members can regulate and agree on the different interests. 

  • Children’s Contact with the Family Business

We usually talk about children entering the family business as a unique moment, but this contact does not occur once and for all. They can “visit” the business while on vacation or while they study. Some children do not consider the family business a job possibility, and others gradually become permanent members. We could group the incorporation of children according to whether they affect or not the company’s organizational chart and management.

 

  • First Encounter

It is the first contact of the children with their parents’ company. The children enter for short periods (often as assistance and in order to fill free hours) or with reduced working hours in order for them to continue with their studies. They collaborate with the company while practicing their economic independence. 

The salary is “agreed” according to the family rules (it is a symbolic salary based on how much they need per month, how much the company can pay, etc.) and not according to the market rules and values. 

This incorporation does not cause changes in the organizational chart. The company’s vision and strategy are outlined by the founders ― they manage the company, their decisions are not questioned. 

  • A Place to Work 

The children are permanent members of the company. The reasons why they entered the family business can be varied, but this incorporation is more formal with respect to schedules, tasks in charge, and responsibilities they assume. 

Sometimes, the objective and the “usefulness” of the incorporation are clear: the children provide external work experience or technical knowledge from university. In other cases, they discover their abilities and potentialities as they work and solve different problems in the company. 

The management and strategy of the business are still in the same hands and, although the children’s work explicitly adds value to the company (knowledge or work experience), the organizational chart is usually not modified. 

  • A place on the Organizational Chart

The children have explored the company and know enough about the business and management, therefore some responsibilities and areas can be delegated to them. They are still not involved in the development of the strategy, but they can be informed about some decisions. It is a period of experimenting with different responsibility roles. The founder begins to notice the skills of the children and to evaluate the place of the company they could occupy. At this point, there is a glimpse of the possibility of a generational leap.

  • The Transition to the Second Generation 

The transition from one generation to another in companies is not caused by the mere incorporation of the children.  There are a number of factors that need to be changed for the second generation company to be something more than just the arrival of younger members. 

The transition to the second generation implies reformulating the family business: reformulate the strategy, management and direction. It is a time of change to work jointly on building a new company that contains the previous one, but that surpasses it in size and potentiality. 

Until now, the company has been the father’s project. In this new stage, more members will be involved in the ideas and strategic decision-making process. The children are now considered as other members strongly involved in the fate of the company. 

It is time to imagine a new organization and make a survey of the necessary resources. To that end, the following points should be taken into account:

  • Selection by Surname vs. Job Profile

It is characteristic of family SMEs that middle management positions are occupied by the children. If there is a balance between what everyone wants and correspondence between the skills and potentialities needed and the skills and potentialities of the applicants, the issue will not cause difficulties. When a position within a company is in demand, or when there is no agreement on the roles to fill, the conflict arises. The way they overcome this situation marks a trend of resolution (or not) of tensions and growth potential: companies are as big as the problems they can solve. 

  • Selection of Applicants — the Emergence of Conflict

In the best of cases, and when there is a clear profile of the position to be occupied, the selection is made taking into account the existing gap to reach the desired attributes. For instance, considering the studies or experience related to the position.

In other cases, profiles are intuitively designed, trying to cover the needs of both the company and the personal development of employees: to generate new areas and practice new roles. 

The family history and the desires and aspirations of the parents with regard to the children as well as of the founder with regard to the company play a critical role in the selection process.

This is a delicate time, as it must be ensured that no member gets hurt. It is necessary to be fair in the selection and decide which profile better suits the requirements. The question that really has to be answered is: If this applicant were not part of my family, would I choose him/her for the position? 

Answering this question does not mean giving up the incorporation of the children. This is not an insurmountable problem. We just have to take this gap into account — the difference between what I want/need and what I have. Making this issue visible enables us to pay attention to the situations that may be detrimental to the company’s management. 

This review may lead to very diverse scenarios: from training and monitoring of the role performance to the termination of employment in a non-traumatic way (for example, by creating affiliates). 

 

  • Creating the Second Generation Company 

The company that once fed a family is no longer viable when the number of members and families depending on its development increases.  

The company needs to grow. Therefore, it has to assess what is the best option for it: to develop what is already built, to invent new business units, to create related companies, etc. 

Everyone wants the company to grow, consolidate and develop. But, how do we make it real? The answer is simple, but complex to implement. A new company must be built — it must transform from a sole generation company to a transgenerational company.  

 

  • The Same Members in Different Places 

Setting up a new organization requires checking who will participate and how they will resolve management and decision making issues.  Paradoxically, the moment when the company requires almost exclusive dedication is a moment of change in the personal life and aspirations of its members. Again, it is necessary to deal with the tensions and check if the way of dealing with conflict is effective at this time.

For the children, this is usually a moment in which their economic independence begins and they start their own families.  

The needs and interests may be different from those of the original family — new actors appear (future wives or children) that will influence the claims and decisions. 

For the parents, it is time to rethink new positions. The role that the founder wants to fill will cause changes in the management of the company, in the relationship with the employees and in the family dynamics. 

A huge variation and diversity exists among what each member desires and, although the intention is to be together, they may have conflicting interests which are very difficult to reconcile. How to achieve this goal?

All for one, and one for all

These are some of the changes the new organization requires: 

To reformulate the mission and the vision: A new company must be established, and for this it is necessary to create consensus, to negotiate in order to grow with others, to be confident. It needs to collectively develop the mission and vision of this new company.

– Changes in the Company’s Management: The Company they aspire to be is different from the current one. This new company will need another type of management — there are more members now making decisions, and they have to learn how to manage in an agile and non authoritarian way. 

– Leadership transformation: So far, the leadership has not been questioned ― this is where differences were solved. Shared leadership (whether between parents and children or between siblings) needs consensus, and shared objectives and strategies. 

– To develop the rules of the organization: The new company will be strengthened, provided that everyone accepts and respects the protocols and regulatory frameworks agreed. These are the tools that will help bridge and balance differences and achieve the consolidation of the company and the strengthening of the family. 

Lic. Susana Silvestre

Organizations Development