Daniel Del'Re

Family Businesses Fail at Succession

 

Oct. 13, 2005--Don Rauch is struggling to groom his nieces and nephew for bigger leadership roles at his family's 60-year company. "We want to transfer management to the third generation, but I worry that we won't be ready when the time comes," said Rauch, whose Southampton, Penn.-based company, M&C Specialties, supplies conglomerates like 3M and Motorola with adhesives for cell phones and bandages.

Succession planning in family businesses such as M&C is an important though often mishandled affair, a new study reports.

Accounting firm Kreischer Miller surveyed 3,000 family-owned businesses and found that almost all expect to keep ownership and management within the family through the generations. However, only half have a formal plan in place to identify and train family members to take the reins once founders retire. Many families neglect to train, mentor, and groom future family executives. What's more, only one-third have non-family members on their board of directors, an arrangement which often ensures that the best qualified family members are chosen to lead.

According to Mario Vicari, a director at Kreischer Miller, familial bonds often discourage owners and family members from disciplining relatives or holding them accountable for the their performance. As a result, Vicari finds that family companies are negatively affected because the second generation of leaders was never fully prepared.

Rauch has spent years working with his family and M&C's non-family board and executives. Rauch's niece, Michelle Higginson, has found a mentor in one of the M&C's non-family vice presidents. They meet once a month with to set goals for sales, profits, and expanding clientele, as well as to discuss the company's future. In addition, Higginson works with a counselor from Delaware Valley Family Business Center to develop leadership and communication skills. And once a month, Don Rauch gets together with his nieces and nephew to discuss M&C's history, its future, and issues of succession.

"If they're going to manage effectively in the long run, the next generation has to hold a controlling equity stake," said Rauch. "But we still have to figure out how that's going to happen."