Every article, paper, memo, or advisory about family business succession touches on some common themes. Plan early. Communicate well. Document the process. Gauge the true interest and ability of the next generation.

A few weeks ago, the New York Times ran an article about succession in family businesses that indirectly hit on a theme that is less developed in the literature and less discussed in the family business community. The article made the observation, through several case studies, that family businesses tend to resist change and innovation more than other businesses. This is primarily because the founders and patriarchs (or matriarchs) remain at the helm for so much longer than leaders of other businesses would. As a result, there is a substantial period of time during which the business is unilaterally run by someone of an age that is not likely to be the fastest to adapt to change, either in their specific industry or across the culture. For example, the article cites family businesses where there was no official succession until the patriarch was in his 70’s or older, and otherwise focused on doing the trade exactly as it had always been done.

This is frequently a function of the basic economics of the situation, and not something that can be eliminated. The key to survival in these circumstances, however, is for the older generation and the younger generation to leverage the trust they have through their family relationship to allow the younger generation to instill innovative ideas into the business even while the older generation has control. The New York Times article provided multiple examples of this and highlighted how this is a unique advantage to a family-owned business. In non-family owned businesses, the leaders tend not to keep control for so long, but also do not have the kind of built-in trust and faith in the next generation of leaders that you might have in a family business.

To be certain, all businesses are different and all families are different, but it is worth thinking how the unique advantages of a family-owned business – like a mature and trusting relationship through family history – might be just the cure for some of the unique disadvantages of a family-owned business in the competitive marketplace. Read the New York Times article here.

 

Drew Steen is a business transactions attorney at Davis Wright Tremaine, LLP.  He represents both buy-side and sell-side clients in mergers and acquisitions, venture capital investments, joint ventures, equity co-investments and restructurings. He also serves as regular corporate counsel for several closely-held and family-owned companies. Drew can be reached via email at andrewsteen@dwt.com or directly at 206.757.8081.