Perspectives from ISB

Most companies have sensitive issues that nobody talks about, but avoiding touchy subjects in family firms can be catastrophic. Eric Clinton, director of the DCU Centre for Family Business, draws a distinction between the family-first family business and the business first family business.

Those in the second category stand a much better chance of success, he says, because they’re commercially focused. By contrast, those putting family interests first can run into all sorts of trouble – from lazy offspring not pulling their weight to high staff turnover because employees quickly learn that being family trumps ability.

One of the biggest elephants in the room in any “Mom and Pop” business is succession. Stepping back when you have given your energy and passion to a company for maybe 50 years is difficult and not every founder knows when it’s time to bow out. Often, it would take a brave son or daughter to tell the “Monarch” (a founder who typically leaves in a box) that their reign is over.

The average tenure of a CEO in a family business is 23 years compared with just six years in a multinational. Equally, the informal structures often found in family businesses can foster an environment where disagreements are allowed to escalate and become intensely personal.  Clinton says one of the ways family firms can handle succession while also tackling interfamily scraps is by “professionalising” their businesses. “Things like reporting structures are not just for bigger companies,” he says. “Family firms will also benefit from having good processes, defined responsibilities and specific ways of doing things.”

“Professionalising” includes ensuring transparency and well-documented agreements around shareholding and ownership – a classic flashpoint in family businesses. It also means putting clear management structures in place [one person in overall charge with designated reporting lines beneath], having a succession plan and involving outsiders in the business whether at management or board level.

“Succession is not about someone walking in one day and saying, ‘I’m out of here’. It’s a process that should be worked out during regular meetings where issues such as ownership and control are openly discussed. The main concern is that people leave it too late.”

One way of easing the transition is for the founder to move from CEO to chairman or chairwoman of the company. They might also take on an ambassador-like role representing the company’s interests where desirable.

Families often grow faster than businesses and one route to ruin is to have an open door policy around employing family members. Clinton recommends laying down a set of criteria that family members should meet if they want to join the business. For example, they should have relevant formal education and a specified length of outside experience, preferably at management level and ideally in a family-owned business in a foreign market.

Source: Keogh, Olive., January 19, 2018,