The family has been and continues to be one of the fundamental structures of economic production. According to recent statistics, 90% of corporations in the United States (35% of which are among the Fortune 500 corporations) are family-owned or family-controlled. The same is true in Latin American countries.
However, 70% of these companies fail during their first 20 years of life, that is, they do not make it through the transition to the second generation, and the percentage rises to 90% in the transition to subsequent generations.
In addition to facing the philosophical, social, economic and technological changes that have taken place in the world environment in the last decade, such as globalization, increased competition, commercial openness and advances in communications, family businesses face the challenge of surviving and overcoming other additional problems.
Succession and control issues are and will continue to be the most cumbersome issues that a family business must deal with.
In some cases, the approach persists that family leadership should be carried out by the first-born and the shareholding should be in equal parts for all the siblings.
Obviously, the firstborn does not always have natural leadership and this often creates major conflicts. On the other hand, if the decision-making mechanisms and leadership among the siblings have not been clearly defined, this situation generates the formation of factions and hinders expeditious decision-making.
When the share ownership has been divided equally for each branch of the family, after the third and fourth generation the share ownership has been diluted. Over the years the selected leader realizes that he or she has assumed responsibility for the family business and the family, with equal or lesser involvement than many of his or her relatives.
The question then arises as to whether compensation should include other types of mechanisms for those who make a long-term commitment to leadership, so that they are rewarded for assuming greater responsibilities than the rest of the shareholders of the family business.
There are also cases where when the management succession is passed on to the one who has been involved in the family business and the shareholding control is equal for all the family members, a crisis is generated by the decision making and eventually complaints about the way the business operates.
In some cases, the family member who has remained in the business reacts by offering to buy out the remaining family members. In those cases in which the process of buying and selling shares has not been foreseen correctly, conflicts and distrust may increase.
In family businesses where the Board of Directors is composed solely of family members, it generally lacks objectivity and strengthens the formation of factions.
The implementation of a Board of Directors as a body to make strategic decisions in the business is a useful mechanism, especially if external directors are involved to help and improve professionalism in decision making.
As long as there is no clarity on succession and control issues, the continuity of the family business may hang in the balance.
With the succession and control mechanism defined, the family business can generate welfare for all its members, so that some could be directly involved in the family business, others would be shareholders with decision making and others passive investors, but all in harmony.
The process of developing a family business continuity plan that anticipates family conflict is unique and must be tailored to the needs of the business and the family.
At the end of the day, the hope is to obtain a document that represents something like the "political constitution" of the family, to which everyone is committed. The implicit benefits of this include not only improved business performance, but also improved family expectations and trust.
