Banyan Global

A ‘double transition’ crisis can result when CEOs hold the reins too long

When Tom Pickens and his wife, Kelly, suddenly died in a plane crash, the shock left their children and grandchildren in disarray. The Pickens family had lost not only its beloved patriarch and matriarch, but also the leaders of the family’s $500 million produce business. Although Tom and Kelly were in their late 80s, they had continued to run and own the business Tom had founded decades before. (This is a real case, with identifying details changed.)

Amid their grief, Tom and Kelly’s four children timidly assumed leadership roles in the business. While they had grown up with the business and some worked there, it had always been Tom’s company. One son, Paul, had the COO title, but he, the board and senior executives always deferred to Tom’s strong perspectives on everything.

The initial eagerness to step into ownership gave way to frustration and tension as the siblings (in their 50s and early 60s) struggled to make core strategic decisions. Paul (now the CEO) was uncertain about how to share ownership decision making with his siblings, who now owned equal shares of the business. Though they had participated in educational programs, worked with facilitators and attended family meetings for years, nothing had prepared them for the “real thing” — life without their father at the center of business decisions.

Further complicating the transition, the third generation, now in their mid- to late 30s, were starting to ask questions. Cousins who were store managers and product leaders wondered, “When do we get to make our mark on the family business?” Branch tensions emerged. Cousins who were not involved in the business began to want much more information about the company’s financial performance and dividend pay- outs. The family asked themselves: “What is going on here?”

What are double transitions?

Even for the most thoughtful families, there are layers of emotional and practical challenges involved as one generation hands off power and decision-making responsibility to the next. But that transition becomes exponentially more complex when an owner-manager continues to control the business well into his or her 80s or even 90s. Think about England’s Prince Charles (now 70), who has waited for decades for the one job he was born to have, without any control over the timing of his own destiny. The passion for the family “firm” felt by his eldest son, Prince William (now 36), is surely diminished by the knowledge that he, too, may have to wait decades before he gets his turn at the helm.

The double transition dilemma is one we see frequently in our work advising family businesses. As was the case with the Pickens family, when a controlling owner maintains a central role for too long without creating space for the next generation to lead, it can unintentionally leave not one, but two generations of future controlling owners and business leaders adrift.

When the second generation’s turn at the helm finally arrives, they’ve had little chance to develop their own vision for the family enterprise and a plan for making decisions together as owners. In a well-planned generational transition, this next generation would have had years, even decades, to think and work through these issues together, so when the mantle is passed, they will be ready. But in the double transition scenario, the second generation of owners must rapidly organize themselves to lead while also scrambling to realize their own vision for ownership.

This rapid transition would be difficult enough, but it’s made infinitely more complicated because the second-generation owners are already behind the eight ball in developing the third generation. The result is often a messy, complicated double transition in which the newly empowered generation, finally given the opportunity to lead and to enjoy its position of power, must scramble to pull its own act together and, at the same time, figure out how to prepare their children for future leadership roles.

G2 must find a common vision

After their father’s sudden death, the four Pickens siblings were immediately caught up in tensions they had had no practice managing. Paul and Jackie felt it was crucial to preserve their father’s vision for the company and sought constantly to represent “what Dad would have wanted.” Daniel and Annie saw Tom’s death as an opportunity to refresh the company’s strategy and grow in new ways. The siblings were alarmed at how quickly their disputes began to spiral out of control. Without experience negotiating such weighty issues, they struggled to keep their emotions in check.

No matter how much time they’ve spent in the business as individuals, a second generation that has been waiting in the wings while an aging parent hangs onto control has likely not solidified their own working relationships. They are used to seeking their parent’s counsel and relying on his or her experience in challenging situations. As a result, they are almost certain to face conflict, either because they lack alignment as owners or because they are simply inexperienced in decision making. The Pickens siblings’ struggles with their own interpersonal dilemma were made more painful by the knowledge that their children were “inheriting” their conflict without having enough experience to form independent opinions.

G3 must engage and get up to speed

Acutely aware that their parents’ generation had yet to have its turn at the helm, the third Pickens generation had not pushed for meaningful engagement in the business. In fact, the two senior generations never considered bringing the third generation into important decision-making forums. As the third generation watched their parents descend into infighting and decision stalemates, they felt powerless and turned off.

Some of the 14 Pickens G3s worked in the company, but none of them felt truly informed about the business or able to imagine themselves in leadership roles. Many kept themselves emotionally at arm’s length, wary of stepping into what they saw as a “hornet’s nest” of disagreement among their parents.

Some, discouraged by their parents’ leadership and uncertain of the company’s future, considered pursuing careers outside the business. They wanted to engage and continue Tom’s legacy, but they did not feel authorized to voice their hopes and ambitions.

Neither generation had truly been allowed to take full psychological ownership of the company, even though they cared deeply about its history and Tom’s legacy. The second generation could not fully embrace the reality that they — not their father — were the owners of the company, and its fate would rise and fall with their decisions. The third generation felt even more like interlopers.

The good news is that there is a way to avoid the double transition conflict — or at least to limit its damage — without tearing the business and the family apart in the process.

Avoiding the double transition

All business families must understand that smooth transitions across generations take years to accomplish. Even though the prospect of discussing the future seems awkward, the alternative is to work through the handoff in a crisis atmosphere. In the best-case scenario, all three generations will play an important role in continuity planning while there’s time to do it properly. To avoid the crisis:

  1. The controlling owner must ask: Do I really want this to be a family business? It’s OK if the answer is no — not every great business needs to be handed down to the next generation. But if the answer is yes, the business leader must prepare a plan to give the next generation the authority to make meaningful decisions by themselves (without Dad or Mom as the mediator) and must commit to a timeline to hand over control. Identify who will take over which roles and clarify the authority behind those roles. Communicate clearly about when you will step down, first from the small roles and later from major leadership tasks.
  2. The current leaders must build the governance needed for the future. Because there will no longer be one decision maker going forward, second- and third-generation family businesses need a board of directors (to represent the interests of the shareholders and oversee management) and an owner forum (a venue where owners can align on their purpose for owning the company and the high-level guardrails for how the business should perform). With these governance structures in place, future generations will be better equipped to operate in separate management, board and owner roles.
  3. The second generation shouldn’t wait to prepare the third generation for future ownership. This generation is likely to be more diverse and less connected than their parents. They will need education about the business and about the role of business owners. They will need an opportunity to decide if they want to be part of the business or if they would prefer to opt out of ownership. Start conversations with the third generation early; get their questions and their perspective on the table. Find ways to involve them in smaller decisions about the business and hold them accountable, as a way of building their decision-making muscles and fostering their ability to make decisions together.

Managing through the double transition

As difficult as the double transition can be, we have seen families navigate this situation successfully. Inevitably, the burden falls on the second generation. They must acknowledge the challenge, then move quickly to find ways to work together. As hard as it is, they need to exercise the discipline to put emotions and egos to the side so they can make essential decisions, clarify roles, support each other in those roles and invite the third generation into genuine engagement with the business.

The Pickens family was able to navigate the transition because they were committed to seeing the business go forward and because they found “common cause” as family members to get the hard work done. By refocusing their energy from debating “what would Dad have wanted” to “what do we want this business to be,” they were able to forgive small slights, communicate their expectations, remember basic shared values and mobilize deep family connections.

The sense of accomplishment when families succeed in the double transition is immense. However, anyone who has completed this work will say the business and the family would have been better off with more time to plan and prepare.

 

First Published: May 2019 in Family Business Magazine