Andrew Keyt of the Family Business Center says the best choice can be a painful one
Dennis Berman of the Wall Street Journal and Andrew Keyt of the Family Business Center at Loyola University Chicago got together to discuss family business succession issues and how Millennials fit in. Here are the highlights of their talk. (More)
- BERMAN: This election has brought forth a lot of discussion about grave threats to America. What kind of threat do millennials pose to America’s family-owned businesses?
- KEYT: Family business, when leveraged correctly, can actually be a great opportunity for millennials. Millennials love to have meaning and purpose in what they do, and when a family is behind the business’s values and its vision for the future, it can be really empowering to a millennial.
- BERMAN: It doesn’t make much sense for a family business to be passed on to family. It should be, at least in theory, passed on to the person with the best economic outcome for that enterprise.
- KEYT: The best family businesses have that approach. Family businesses, when working well, understand that we have to do what’s right for the business, and to balance that with what’s right for the family and the family’s economic interest.
- BERMAN: What percentage of businesses have that enlightened view on the world?
- KEYT: I would say 30% to 40%. The advantages are patient capital, long-term approach, a smaller, unified ownership group that can make decisions more quickly than a large bureaucratic organization. There are complications and disadvantages, mostly on the family side: How do we keep a family unit together, and manage that balance between reinvestment in the business and payout for diversification or other economic growth for the family.
- BERMAN: You’ve been in tough meetings. What is it like to try to impress upon someone that his or her daughter or son maybe isn’t the right person to run that business, and maybe the niece or nephew is better suited?
- KEYT: I try to get them to talk about their vision for the future of the family in the business; and to understand how, if the selection process is fair, it will produce the best leader, and that’s in their long-term best interest. So you have to align it with their goals—and have data to support it. You can’t just have an opinion and say, “Your son’s just not good enough.”
- BERMAN: Isn’t that the case sometimes?
- KEYT: It is, but you have to have the data to support it. The track record, and the objective data.
- BERMAN: A few generations ago it probably would have been less likely for a woman to take over the business. I think that has changed.
- KEYT: Absolutely. The research is showing that any succession that includes a woman goes more smoothly. A father-to-son transition is the most emotional, and potentially highly volatile, of any succession transition.
We’re seeing more women choose their family businesses, and more women being considered for senior leadership roles in their family businesses. That’s a study we’ve repeated starting in 1996, 2003, 2008. And we’ve been seeing the percentage of women’s participation increasing.
Currently, as much as 70%, if I’m remembering, of family businesses are actively considering women, their daughters, for senior leadership roles.
- BERMAN: Why are transitions that include a woman smoother?
- KEYT: The men’s identity is more closely tied to their economic production. So when you’re asking a man to step down from a role where they’re economically producing, you’re asking them to give up a portion of their identity.