Inheriting the family business Prepare to hand over the family business (Part 2)

“In the long run, inheriting a family business is “control”.
It's not "Management" anymore.

In part 2 of this family business succession series. We will talk about the qualifications of the heir who will inherit the business, the role of "outsiders" and the expectations of parents. and the important philosophy of long-term family business succession

Heir qualifications: "ability" or "bloodline"?

Sometimes family cultures that have been passed down for a long time are difficult to change, such as the "eldest son culture" of Chinese families that reflects the idea that "bloodline" is superior to "talent".

“Blood is superior to ability” / Culture of the eldest son

The “eldest son culture” can be commonly seen in Chinese families. For example, Li Ka-shing, Asia's former number one billionaire, appointed his eldest son, Victor Li, as the sole successor to the family business. Even though he had two sons and a huge business empire, Li Kashing had been clear from the beginning that his youngest son, Richard Lee, was not the heir to inherit the family business.

But as a father, he openly announced his financial support for Richard Lee's business so that his young son could go out and build his own business empire. But in the case of Li Kashing's family, it is possible that other factors, such as Victor Lee's simple, predictable lifestyle, were the key factors that made him a better fit than his youngest child, Richard Lee. Live a more exciting life While the abilities of the two children may not be clearly different.

“Ability Beyond Blood” / Outsider in the Family Business

For families that have gone through many generations, “talent” may be the deciding factor in who will be the next leader, such as the Ayala family business. From the Philippines 7 generations ago They have the idea that "ability" must be more important than "bloodline". Currently, only 3 family members out of more than 70 people in the family still work in the family business.

“Although our family is quite large, But there are only three members, namely my father, me and my younger brother, who manage the family's business. Other than that, the CEOs of the subsidiaries and related companies are all professionals. who were not members of the Ayala family…they were paid Be adjusted according to your true abilities and performance. Our family saw that Treatment of employees or executives who do not comply with this It will affect attracting good and talented people to work in the organization. as well as limiting opportunities to grow our own business,” commented Jaime Augusto Zóbel de Ayala, the seventh generation heir to the family.

Like Wang Yungqing, Taiwan's god of management, he doesn't believe in bloodline, but believes in "system" that will be the screening tool for the most suitable leaders.

“If a business is managed reasonably, Employees will receive good training. and a successor will eventually emerge.” This was the idea that Wang Yungqing always believed and practiced. And when the new leader doesn't have to be surnamed Wang. They also have a lot of freedom to choose who they deem most “suitable” for the family business.

“outsider” in the family business

For a family business that has traveled through a long period of time, They know the importance of using “outsiders” to help their business. or even becoming a "leader" of the family business Because hoping for "insiders" to inherit the business from generation to generation continuously for a long time It's almost more of a dream than a reality. There are always some "accidents" in the path of business succession, so whether it's in-laws, daughters-in-law, relatives or professional executives, These are important "helpers" especially during the generation transition where the real heir may not be ready yet. or there is a lack of leadership.

Just like what happened to the Bata family, where Thomas Bata, the leader of the first generation, had an accident and died prematurely, Thomas Jan Bata, the true heir of the second generation, who was only 1 years old at the time, was not ready yet. Will step up to be a leader, causing Jan Antonin, his uncle, to take over the family business before later returning it to his bloodline heir. Or in the case of Hermès of France, which is over 2 years old, there were "outsiders" who took over as top executives in two periods: "in-laws" took over as top leaders during the 17rd generation to the 200th generation, and “Professional executives” come in between the 2th generation and the 3th generation, etc.

or culture of receiving "Adopted son-in-law" becomes a new member of the Japanese family. The adopted son-in-law will change to use his wife's last name. Including taking over the responsibility of managing the wife's family affairs as an heir to the woman's family. This happens when the female family has no male heir. or having a male heir but not having sufficient ability to inherit the business In such a case The woman's family will select a man who is smart and talented (but may have an inferior social or economic status) to be her son-in-law. and entrusting the family business to manage

The “adopted son-in-law” culture is widely used in Japan. For example, Family businesses such as Nintendo, Kikkoman or Toyota also appear to use this practice.

Expectations of parents

“How much do you have to do to be called enough?”

A business heir I know, she is good at studying, good at working, has always been a good child, and most importantly, she loves her parents very much. And it is this love that makes her feel that it is her "duty" to take responsibility for “Expectations” of parents who want their children to Come in and help inherit the business. Her parents continued to work hard. Some students have not yet graduated. As for the younger ones who have graduated, they choose to work outside. And who would come in and help lighten the burden on parents if not you?

Confusion arises in the heart. “How much profit do you have to make? How big is the business? And how much work do you have to do to be considered enough?” Even though she herself still has to work hard like this. If you're rich, you still have to be this tired. So why be rich!? She was not at all happy with the way things were.

happiness equation

This is one example of a symptom. “Unhappy” of the heirs who come into the family business, but “happiness” is still a broad term that is difficult to measure. So I would like to borrow Mr. Tim Urban's definition of happiness. It is in the form of a simple equation as follows:

The explanation of the happiness equation above is When reality (Reality) in people's lives One was better than he expected. (Expectation), he will be happy (Happy). But if the reality is worse than he expected. That person will not be happy. For example, a person who gets second in an exam may be less happy than a person who gets 14th in an exam if he hopes to get first. Happiness is therefore a comparison between “Reality” and “Expectation” where “Reality” is something that is more difficult to change. “Expectations”

Therefore, the easiest way to increase one's happiness is to increase one's happiness. One is lowering expectations. That is, lowering the expectations of heirs who want to be "good children," children who try to meet their parents' expectations in everything. Including matters of business succession.

Lowering parents' expectations is difficult. But if parents can do it, it will help a lot. It will reduce the pressure on the heir. Because usually Heirs often put pressure on themselves. They often have this equation in their head.

(Good child = child who lives up to parents' expectations)

I would like to propose a new alternative equation as follows.

(A good child = a child who lives up to the expectations of their parents without being too hard on themselves.)

Lower expectations for both parents and children. Then the family's total happiness will increase.

“Mother's friend's child” and communicating expectations

“My friend's son always makes me look bad.”

One heir said...telling stories about "friends' children" and praising them is normal behavior of parents who both love and care about their children. But it is also a behavior that must be done with caution because it may create feelings of comparison between "friends' children" and "our children" which can sometimes create a strong will. But sometimes it can cause our child to become completely atrophied because there is no way to do it the same way. “Mother's friend's child”: Parents' expectations for their children. Whether it's a matter of grade Good university entrance exam or becoming a skilled executive in the family business will come into effect The heirs' "expectations for themselves" were difficult to avoid. Whether your parents speak directly or indirectly through telling stories. "My friend's son"

When that happens Parents therefore need to manage their own expectations for their children. who came to work well in the family business Do not let it be so high that it causes your child distress. And don't let it be so low that your child is not interested in doing good work. Expecting just the right amount is probably best. Importantly, when parents are confident that they have appropriate expectations for the heir. The next thing you should do is “communicate” those expectations clearly. Don't let your heir think on his own and suffer alone. Whether they think they have high expectations to the point of feeling distressed that they cannot meet their parents' expectations. Or they think that their expectations are not met until they feel distressed that it is because they do not have the ability. In spite of the fact They didn't even know what was expected of them!

In the long run, inheritance is "care," not "administration."

“Our family business is being passed on to the fifth generation. Our family's role from now on is not management. It's about owning it,” Krister Ahlström, fourth generation and former CEO of the Ahlström family business from Finland, commented in an interview.

Every family business evolves on its own. When the family business grows to a certain level Family members often move up to the board as directors to represent shareholders and set policy. and strategy in the big picture rather than managing the business yourself Heirs in the next generation They may or may not join in managing the business, but their main duty is to control. Take care of the family business (Control) to move forward as best you can. As for business management (Manage), you may find an outsider who has the ability. and suitable for the business can help

This is not a matter of disinterest, indifference, or laziness. Do not take the work of the heirs seriously. But this practice reflects the division of duties between owners and executives, with "owners" performing control duties while "executives" performing administrative duties (manage). Of course, there may be some heirs who are qualified. and are interested in being able to manage the family business That's good. But the family could not expect that there would be successive heirs like this from generation to generation. What is more important is preparing to find the most suitable person to continuously manage the family business.

Inheriting a family business has many aspects that families must understand, accept, and adapt to the situation. and changes that occur according to the era “The ability to adapt” is an important quality that will allow a family business to survive in the long term.

Resources:

• Schumpeter, “Reluctant heirs,” The Economist, 2015 (The survey was conducted by Peking University)

• Leo Lewis, “Succession crisis stalks Japan's family business,” Financial Times, May 23, 2017

• Tetsushi Kajimoto, “Small firms dying out as successors hard to find,” Reuters, October 3, 2016