Navigating the Future: The Importance of Professionalization in Family Businesses
In the intricate world of family businesses, the conversation around succession planning and professionalization is becoming increasingly vital.With family enterprises constituting a staggering 90% of Spain’s entrepreneurial landscape, as highlighted by the Family business Institute, the need for strategic foresight is more pressing than ever.
The reality is stark: many family businesses struggle to survive beyond the first generation. Research indicates that over 70% of these enterprises do not make it to the second generation, and a mere 6% reach the third. This alarming statistic underscores the necessity for a structured approach to ensure longevity and sustainability.Albero Gimeno, a professor at Esade and a researcher at the Esade Entrepreneurship Institute, emphasizes that professionalization is not merely about tidying up operations. It involves creating a robust organizational structure that reduces dependency on the founder.“The goal is to make the company less reliant on any single individual, typically the founder,” he explains.
Victor Torrico, the general director of Afianza, views this transition as a significant challenge. The process of professionalization frequently enough requires a shift in mindset, notably for founders who may find it tough to relinquish control. Lucía Coto, a partner at PwC specializing in family business, points out that the survival of these enterprises hinges on this very transformation.
The complexities of integrating family members into management roles can lead to conflicts, especially when personal relationships cloud professional judgment. Coto advises that the professionalization process should be objective and meticulously planned.“Establishing clear criteria for each position, without bias towards family members, is crucial,” she states. This approach not only mitigates potential disputes but also ensures that the most qualified individuals are placed in leadership roles.
José Carlos Casillas, a professor at the University of Seville and president of the Spanish Society of Family Business Researchers, adds that while external management can be beneficial, family members can also play pivotal roles if they possess the necessary skills and qualifications. “Having a family member as CEO can be beneficial, provided they are adequately prepared for the responsibilities,” he notes.
However,the transition is not without its challenges. Ricard Agustín, founder of Family Business Solutions, highlights the tendency for emotional ties to influence decision-making, often leading to a lack of rigor in evaluating family members for key positions. This emotional bias can hinder the professionalization process and ultimately jeopardize the business’s future.
Experts agree that the responsibility for initiating this professionalization should lie with the outgoing generation. The founder’s willingness to adapt and share leadership is critical. “It’s essential for the founder to be involved in this process, as they carry the values and knowledge that are vital for the company’s legacy,” says Gimeno.
Timing is another crucial factor in the professionalization journey. Experts recommend starting this process well in advance of retirement. “waiting until the founder is nearing retirement can lead to unforeseen challenges, including sudden health issues or unexpected events,” warns Casillas. Proactive planning is key to ensuring a smooth transition and safeguarding the business’s future.
As family businesses navigate the complexities of succession and professionalization, the emphasis on strategic planning and objective decision-making will be paramount. By prioritizing these elements, family enterprises can enhance their chances of thriving for generations to come.The recent passing of Isak Andic, the founder of Mango, has reignited discussions about the challenges of succession in family-owned businesses. This topic is particularly relevant as many entrepreneurs grapple with the complexities of transitioning leadership while maintaining harmony among family members.
experts highlight that the reluctance to address succession planning often stems from emotional difficulties. A professor from the university of Seville notes that many business owners find it hard to envision a future without their involvement, leading to procrastination in making crucial decisions. This hesitation can create conflicts, particularly when family dynamics are involved.
In the context of family businesses, professionalization emerges as a key strategy for lasting growth. According to industry insiders, the ambition of the entrepreneur plays a significant role in this process. For those looking to expand and enhance profitability, early professionalization is essential. This is especially true for tech startups, which typically adopt professional practices from their inception.One potential outcome of professionalization is that family members may choose to step back from day-to-day operations while still participating in governance through board positions. Experts recommend that even those not directly managing the company should seek education and training to become informed shareholders. Understanding the company’s performance and strategic decisions is crucial, especially when it comes to balancing personal financial interests with the long-term health of the business.
Though, the presence of family members on the board can be a double-edged sword. While they bring valuable insights and a personal stake in the company’s success, their involvement can also lead to conflicts, particularly in the early generations of family businesses. The introduction of independent directors can help mitigate these issues by ensuring adherence to good corporate governance practices.
Despite the advantages of professionalization, many family businesses still struggle with its implementation. Acknowledging this gap,industry leaders emphasize that a lack of professionalization is a significant weakness and a common reason for business dissolution. While some companies have made strides in this area, many still operate without a formal board or rely solely on family members for governance. This can lead to increased risks and inefficiencies.
Involving external advisors can foster a more structured approach to governance, encouraging open communication and a more formalized decision-making process. As family businesses navigate these challenges, the importance of professionalization and effective succession planning cannot be overstated.
Time.news Editor: welcome,everyone! Today,we are diving into a captivating topic: the professionalization of family businesses and the crucial role it plays in their success and longevity. We’ve seen staggering statistics highlighting that over 70% of family enterprises do not survive beyond the first generation, and a mere 6% reach the third. Joining me to discuss this pressing issue is Professor Albero Gimeno from Esade, a prominent researcher in family business dynamics. Thank you for being here, Professor Gimeno.
Albero Gimeno: Thank you for having me. It’s a pleasure to discuss such an essential topic for the future of family businesses,particularly in Spain,where they make up a significant part of the economy.
Editor: Absolutely. To kick things off, why do you believe professionalization is so vital for these businesses?
Gimeno: Professionalization is essential mainly because it reduces the dependency on the founder and creates a strong organizational structure. Many founders, understandably, have deep emotional ties to their businesses, but this can lead to decision-making that favors familiarity over competency. Establishing a robust structure allows for the systematic evaluation of talent, which is critical for long-term success.
Editor: That sounds very reasonable. Though, we certainly know that shifting a company’s culture towards professionalization can be quite challenging. Victor Torrico, the general director of Afianza, mentioned that founders often struggle to relinquish control. What strategies would you suggest to facilitate this transition?
Gimeno: yes, it is a significant hurdle. I believe open communication is vital. Founders should start by recognizing that their legacy is not just tied to their specific influence within the association but also to the company’s long-term viability. Engaging in workshops or involving third-party advisors can provide an objective viewpoint, helping founders see the benefits of sharing leadership and encouraging a mindset shift.
Editor: That’s insightful. Lucía Coto from PwC emphasized the importance of creating objective criteria for management roles to mitigate conflicts. How can family businesses ensure these criteria are respected?
gimeno: Establishing clear, obvious selection processes is crucial. Family members should be evaluated alongside external candidates based on standardized competencies relevant to the position. Techniques like 360-degree feedback can definitely help ensure that hiring or promotion decisions are less affected by emotional biases, focusing rather on the skills and qualifications required for the role.
Editor: Excellent point! However, José Carlos Casillas noted that while external management is helpful, family members could contribute substantially if adequately prepared. How can families effectively prepare their members for leadership roles?
Gimeno: Training programs tailored for family members are key. this includes mentorship, formal education in business management, and providing exposure to different aspects of the business.By preparing them through structured pathways, family members can gain the necessary skills and confidence to lead effectively when the time comes.
Editor: That sounds like a proactive approach.Ricard Agustín spoke about emotional biases frequently enough influencing decision-making, which can derail professionalization efforts. What steps can be taken to counteract these tendencies?
Gimeno: emotional ties are a natural part of family dynamics. I suggest implementing structured decision-making frameworks that focus on objective performance indicators. Encouraging open discussions where family members can express concerns allows for healthier dynamics and clarifies that the organization’s best interest must guide decisions, even if it’s challenging emotionally.
Editor: It’s intriguing how emotional intelligence plays into business decisions.As we approach the end of our discussion,what advice would you give to the outgoing generation of family businesses regarding the professionalization process?
Gimeno: My primary advice would be: start early. Begin conversations about succession planning and professionalization well in advance.It is indeed vital to involve the next generation in these discussions so that they feel prepared and valued. Ultimately, the outgoing generation’s willingness to adapt and share leadership is critical for a smooth transition and the company’s future success.
Editor: Thank you, Professor Gimeno, for yoru invaluable insights today.It’s clear that professionalization is not just a trend but a necessity for family businesses looking to thrive across generations. I appreciate you sharing your expertise with us.
Gimeno: Thank you! It’s been a pleasure discussing this vital topic. I hope we can inspire family businesses to embrace professionalization for a sustainable future.
