“Son, I’m building the company for you!” “I will introduce you at today’s meeting.”
Do these sentences sound familiar? Many company founders stumble across the entire exit and manual control while many successors are afraid of the future. However, modern company succession requires professional preparation.
Hammel & Hochreiter is the expert on this.
Some years ago, the family members, as owners of an automotive company came to visit the management in Hungary. The founders always sat in the first row, behind them were the members of the next generation. In the beginning, the operational leaders reported to the “elderly” members, but over the years the younger generation in the second row repeatedly asked their questions too, some of whom were then placed in the first row. “It is fortunate to hand over the ownership stake when family members are just the owners. This is usually only a task for umpteenth generation,” says Rajmund Virágh, Managing Director of Hammel & Hochreiter (HH).
The leader on the list of the world’s oldest family businesses is a Japanese company operating a hundred-room hotel, founded around 1300 years ago and by now the 46th generation is responsible for running the business. According to statistics, among the oldest family businesses there are many Italian, French, German and British companies which are beyond the reach of at least ten generations. By contrast, Hungarian family businesses, founded twenty-five or thirty years ago, will only now face the problems of the first-generation change.
“The Hungarian family businesses of the 1990s will also be facing the change of generations, as the directors slowly reach the retirement age. As a result, the company transformation and the organizational restructuring can not be avoided”, says Rajmund Virágh, who emphasizes the importance of a charismatic founder in this complex company succession procedure. “In every business’ life comes the key moment when it is clearly visible that the founder with the great ideas is rather hindering than helping the organization”, says Rajmund Virágh. It is extremely important to identify right at the time of the formation whether the change of generation is an easy or a difficult task. “It is also necessary to clarify whether I am building the company to sell it later, or to transfer ownership within the family or to create a job for my family members”, he says. Ten percent of domestic family businesses has not yet made the first generation change and at least half does not have a real concept of succession strategy.According to the succession specialist, most of the companies involved make typical mistakes: Although they believe in their well-educated twenty-five-year-old offspring without real life and business experience, it is an illusion to assume that a single person can take on all the tasks of an enormous founder. To maintain the company and the company name, the rational solution is to train the offspring to become future owner, and to divide the functions of the founder among the best available professional leaders.
“First of all, the founder must clearly identify how he sees the future of his business. Selling? Would he just let the operational leadership go? Or would it make sense not to keep the strategic control? “, lists the specialist the possible scenarios, adding that without plan B there is no real retirement. “I know an owner who, after selling his company, did not find his place, did not know what to do with inactivity, because he did not work out a real alternative for the period after his successful sale.”
WITHOUT BIG PROBLEMS
“Prior to the company transfer, it is worth examining what is good for the company and for the child”, says Rajmund Virágh. The offspring, who have a profile and have a desire, are supported by HH’s experts to be able to run the founder-created company as a caring and responsible owner. Though the offspring often grow up in the family business, this is not a guarantee that they will be able to look after and continue the business as the founder imagines it. In many cases, it may well be that the founder’s ideas based on today’s economic and business environment also need some fine tuning. For many family businesses more than two or three decades have passed since their founding! Nowadays, this is a very long time in a company’s life. The average age of the top 300 companies is also decreasing rapidly and is currently only at 12 to 15 years. Recently, market trends and expectations have changed dramatically and accelerated incredibly. Meanwhile, the founders of family businesses are older and due to their age, they might decide on an emotional basis about issues related to generational change than on rational grounds. Consequently, they may not be able to separate ownership from operational and executive responsibilities.
After clarifying the basics, HH also assists to develop corporate structures and processes. Only a few owners think of this, but this is the key to getting the founder’s tasks into professional hands. With interim managers, the structural shift can be realized, and the tasks can be transferred to professional managers, so there is no disruption or loss of time. Hammel & Hochreiter offers experienced specialists in any area for the time until the company finds the ultimate solution and helps to develop or select managers. The preparation and complete process of the transfer can take up to 6 to 16 months. The offspring are also supported by HH in managing the founder’s company as a careful owner. “And if someone is prepared to become an operational manager, it’s strongly recommended to explore the world, trying other companies and reaching middle management level positions. Like the youngest prince in the fairy tale who, after returning from his journey, is ready to lead the empire. In this way, it is possible to avoid burnout, the successor will not enter a “squirrel wheel” too early, and his thinking will not be limited. This way, frustration about thoughts such as ‘Am I as good of a leader as my father?’ can be spared.
“Through interim management services interruptions can also be avoided.”