"What's wrong with family business? The family."
So says New Hampshire attorney John Hughes, who frequently counsels clients on succession planning. John tells me he has seen "way more failures" than successes when it comes to bringing children into a business. Paul Karofsky, a family business consultant, puts it even more bluntly. A dysfunctional family enterprise, he cautions, "is like no other hell on earth."
Given the poor odds of a successful transition to the younger generation, why would any company owner consider it? Well, most entrepreneurs spend their lives nurturing two things: their companies and their kids. So it's natural to want to pass one down to the other. On the practical side, family companies are ideal vehicles for transferring knowledge and experience to offspring. They provide welcome employment and leadership opportunities and can act like domestic magnets, pulling family members together. And, of course, there's great pride in perpetuating a family brand.
For most families, the process of transitioning to the younger generation is a mixed bag. Gloria and Dave Sharrar founded Richmond, Virginia-based CityParking in 2004. Two years ago the Sharrars' son (who shares his father's name but goes by David), took over as CEO, and Dave transitioned to chairman. David's sister, Katie, also works in the business. Together, the siblings own 40 percent of the company, with plans for their shares to increase.
Gloria, who is retired from CityParking, says that Dave "has evolved from CEO to Guardian--of his kids and of the business he founded." Dave tries not to meddle in operations, Gloria says, but "sometimes he'll just walk in on the kids, and ask how they're handling this or that. The kids will say, 'Dad, you don't need to be engaged in this.' But it's hard for Dave to let go."
And for good reason. The "kids" are unseasoned and still make mistakes. "Your children will do nothing but reassure you that they're ready and can do the job," Gloria says. But certain things at CityParking fell through the cracks, and some critical client relationships became strained. Gloria takes the long view and reminds Dave that mistakes are opportunities to learn. But she blames both her husband and herself for overestimating their children's readiness to take the helm when they did.
And no wonder. Business demands something not normally required of parents: an objective assessment of their kids' strengths and weaknesses. Family succession only works when offspring are competent leaders who are passionate about their work. Consultant Karofsky says entrepreneurs must make a decision: Does the family serve the business or does the business serve the family? If parents take the attitude that blood is thicker than ability when choosing a successor, chances are the business won't be around long enough to serve anybody.
Luckily for the Sharrar family, this isn't the case. The next generation may be making its share of mistakes, but Gloria says that overall they're doing a good job of steering the growing company. Both kids now have healthy incomes for their families and are proud to be recognized in the community as good business leaders.
For Gloria's part, she's glad to be out of the company. "My conversations with my kids are more personal now," she tells me. "Being in business with your children adds a layer of tension and decision making that can diffuse the fundamental love and caring of the parent-child relationship. Over a long period of time, it creates an undercurrent that can become an undertow."
Anyone with a family business should hire an attorney to help with estate planning and recruit an outsider who can mediate and advise--as well as make clear-headed evaluations of the capabilities of the next generation. That's a role Gloria no longer feels comfortable playing. "I just want to be a Mom and a grandmother," she says. "I don't want to have to assess my own children."