In our agrarian past, every farmer wanted 10 sons because all that “free labor” meant he could have a much bigger farm. The patriarch not only controlled the family business, he also generally controlled the career choices his children were allowed to make. That trend has persisted in modern family businesses—until the past few years. For perhaps the first time in U.S. family business history, succession plans are more likely to incorporate merit rather than bloodline. This represents a sea change, but it is very healthy for the small-business marketplace, the American economy, and, believe it or not, family harmony.
So why the shift toward ownership or management from outside the bloodlines? There are several reasons:
1. Today’s family business leaders understand they and their enterprises can rise only as high as the people with whom they surround themselves will allow. As they seek the most talented players in the marketplace, more and more of those players are motivated by an opportunity for a piece of the action.
2. Given the size of many of today’s successful family-owned companies, they can’t possibly have enough children to fill the many roles necessary for continued growth. And whereas many families formerly shoehorned unmotivated or incompetent family members into service, they now recognize what a morale killer that is for talented and ambitious nonfamily employees.
3. In the past, a family business owner may have been willing to wait until she was 70 and her children were in their 40s to retire and enjoy her golden years. Today’s entrepreneurs are more interested in cashing in their chips and enjoying the good life while they’re young and healthy enough to do so.
4. Modern family business leaders focus to a greater degree on building the values and culture of the organizations than previous generations. It’s consistent with the cultures they build that they would consider ownership opportunities for nonfamily members just as eagerly as for family.
5. Today’s family business moms and dads are less inclined to micromanage their children’s career decisions. If children choose to become engineers, artists or ministers, parents are more supportive and readily look elsewhere for talent to perpetuate the family firm.
6. The professional community and research support the concept of merit instead over nepotism. In a study conducted by Russ Alan Prince of “family-focused” vs. “business-focused” family businesses, he found that business-focused firms protected family assets better, had a higher incidence of implementing succession planning, and created $6.20 of net worth for every one dollar created by the family-focused firms.
It is unlikely that family businesses, the predominant form of business organization throughout human history, will ever disappear. Having said that, the prevailing trend for family business leaders to focus on merit at succession time instead of promoting heirs is a very positive trend.
Source: Rivers, Wayne., Nov 22, 2016; http://blogs.wsj.com/experts/2016/11/22/why-merit-beats-nepotism-at-more-family-businesses/