The unplanned entry of a family member into a family business can cause turmoil

Not every family business is a Wal-Mart, Ford Motor Co., or a Cargill. Around 60 percent of family businesses will not survive past the second generation, and only three percent will make it to the fourth. Some family businesses do better and last longer than others. The question is: Why?

Many family businesses start to fumble when there is an unplanned entry of a family member into the operation of the family business. Such instances include the event where a family member who was not previously involved in the firm is obligated to take over the helm during an incumbents sudden departure, or when a kin is coddled in his career in the firm. In these cases, family members are not groomed for their eventual involvement in the business. Hence, they might be ill-prepared to join the firm, or are a bad fit to the company.

This trend where there is an unplanned entrance of a family member into the running of the business will become increasingly prevalent. Over the next five years, approximately a quarter of family firms will undergo leadership change in the United States. This is in part due to the retirement of the baby boomer generation, of which roughly 7 million hold private businesses. Starting from 2011, 10 000 baby boomers turned 65 daily. Consequently, the market might witness a glut in the supply of businesses up for sale as this generation of business leaders retire. Family firms left without exit strategies risk placing their enterprises in the hands of family members unprepared to take on the responsibility.

The sustainability of family businesses will likely be affected when family members are not groomed to take on their roles in the company. The serendipity of introducing a family member that adds value to the family business means that latter relatives risk being misfits in the company. In turn, they will have a dismal level of engagement with the business that often translates into lacklustre job performance. In the absence of high engagement levels, passion and drive cannot be capitalized to sustain the success of the firm.

Although widespread, the phenomenon is not well recognized. Because it is a family-related issue, family firms often avoid acknowledging the fact that an unprepared family employee can become a problem for the business.

Nonetheless, this does not mean nothing can be done. Amiable family dynamics is the key to solving the issue. In particular, attention should be paid to three aspects of interpersonal relationship, all of which are demonstrated by the Nordstroms, the eponymous founding family of the fashion retailer.

Firstly, family businesses can focus on passing down their heritage. Heritage refers to tacit knowledge incumbents possess that includes business operation know-how, networks, and the family brand name. Heritage is well transferred between generations in the Nordstrom family. A part of the fourth generation, Pete Nordstrom was well-acquainted with the business from a young age as he started working in the stockroom when he was 12. Strong family heritage created through experiential learning or knowledge-sharing helps cultivate family members interest in and engagement with the business.

Secondly, the importance of kin interaction should not be understated. Frequent interaction is critical in ensuring that relatives are positively engaged in the business. The three Nordstrom brothers Blake, Erik and Pete routinely hold Monday morning meetings to discuss issues related to the business. Having routine gathering instils discipline amongst family members to make time for each other, without which, kinship can easily be taken for granted and thereafter neglected. A close knit family is enabled in balancing the rights and obligations relatives enjoy and owe to the family business. It precludes the development of a disproportionate sense of entitlement and prevents the misuse of the companys resources.

Lastly, families should align business goals with family values and principles. The Nordstrom family has chosen philanthropy as a way to reinforce their family values in their business. It operated, for example, treasaure&bond, a boutique that donated all of its profits to New York childrens charities. Other methods of alignment include instituting a family constitution or code of conduct. Such alignment helps the leadership echelon navigate antagonistic decision-making processes. It also keeps other family members engaged even during difficult times as they are likely to identify with rationales that underlie tough decisions.

Why do some businesses do better than others? The answer lies in fostering strong family dynamics.

Not every family business is successful and sustainable. Yet, with the right moves, every family business can be.