The generational change is one of the most critical moments that the founder of a company must face.

The press recently echoed the difficulties in the succession of the Eulen group after the death of its founder. It is not an isolated case. This is a problem that every day affects a significant number of family businesses around the world.

Conflicts in the generational succession of family businesses can be generated in both the smallest and the largest and is one of the most common causes of the high level of deaths of these firms, especially from the third generation. Although it must be admitted that each enterprise and each family is a different case and therefore require different solutions, studies and actual experiences on this subject reveal some considerations of general application.

Generational Relay: Initial Doubts

The beginning of the process takes place when the founder or majority owner of the company reaches an age that advises to start thinking about their relief to ensure that the company remains competitive in the future. It is not for the interested person an easy moment, especially if it is the founder. The company is his son and it seems that no one can manage it as he likes. On the other hand, withdrawing means accepting that it is no longer useful, that it will have to be adopted at a different pace of life.

The moment of the generational changeover is not easy for the founder of the company, because he thinks that no one will manage it like him and, at the same time, must ensure its competitiveness in the future

At the same time, a question arises that often does not have an immediate answer: do I have any young family members who are suitable to carry out the management? And, in the case of having more than one child, how do I distribute the property? In very small companies that can only ensure a good return to the family that is at the front, the outflows are scarce. Either there is a relative who is interested in the business and takes over or gets a transfer or has to close.

Generational Relay in Solid Companies

The succession in the operational management, the succession in the property and the structure of government are key aspects to take into account when giving a relief in a very profitable company.

When it comes to medium and large companies with a good profitability the situation is more complex and we have to distinguish between several aspects: the succession in the operational management, the succession in the property and the structure of government. A strong financial structure at the company level and conservative at the family level are a guarantee to develop the transition process successfully.

With respect to the operational direction, it would be necessary to see if, objectively, there is a relative with the capacity to choose the position. Candidates’ history – and if possible their management in companies outside the family or away from the central – can help make a decision that will be very important to ensure the future of the company. The selection of an external manager is not discarded, but it is usually not easy to find a manager who knows how to combine good management with respect for the culture and values ​​of the company and at the same time have a good understanding with the owners. In any case I would say that the decision to find a suitable director is a matter of business logic, although there may be considerations or elements of other types, especially in companies where management positions have traditionally been occupied by family members.

The selection of an external manager is not discarded, but it is difficult to find managers who understand the values ​​of the company and are understood with the owners

Succession on the property is more complex and difficult to resolve on the part of the entrepreneur – often influenced by his spouse – because there are elements of an emotional nature and the tendency, in many cases, not to make distinctions and share the esteem and , Therefore, the inheritance in equal parts. It is here that after the death of the owner more conflicts can arise between the heirs until it makes difficult or impossible a good management. In some cases the consequence is the sale of the company, the IPO or the entry of other shareholders. It is impossible to give good advice on this point that is applicable to all family businesses. What seems logical is to ensure that the person designated to manage the company has more decision-making power than other shareholders to ensure the necessary command in any company and, at the same time, try to compensate adequately and to the extent possible to others Family members.

Disputes between heirs may lead to the sale of the company, its IPO or the entry of other shareholders

In all cases where there is a generational transition, governance structures, often described in detail in the bylaws and often in the Family Protocol, become important. Apart from the shareholders’ meeting, which is always the supreme body in which all the shareholders are represented, the family council (organ dealing with relations between family and company) acquires importance and, above all, the board of directors.

This governing body represents the interests of all shareholders and is responsible for defining the business strategy and for supervising and controlling the CEO, while ensuring the protection of minorities. It is appointed by the assembly and can be integrated by external people who ensure correct decision making at the corporate level. Proper board composition is the best guarantee to ensure the smooth running of the company.

The generational change is one of the most critical moments that the founder of a company must face.

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