How plenty of 'prattle' can help families avoid a succession battle
Dr Annelie Karlsson is executive director and founding member of Family Business Network (FBN) Sweden, where she works as an educator and adviser to complex, international, multi-generational families. One of Europe’s foremost thought leaders on owner strategies, succession, corporate and family governance, Annelie was in Dublin recently where she delivered the keynote speech on ‘The meaning of ownership’ to members of FBN Ireland in Davy.
Hi Annelie, and welcome to Dublin. How did you first become interested in succession planning?
It was back when I was a doctoral student at Stockholm School of Economics. When the time came for me to write my thesis, I decided that I wanted to write about something so simple and so universal that even my grandfather could understand and relate to it.
At that time, my family was going through a succession of its own. We had a small farm – a forestry – in Sweden and even though there were only three siblings and a cousin involved, it was a very difficult time. And I realised that if those four could have so much trouble resolving things, how do much bigger business-owning families sort this through? I found that intriguing and so I decided to write my thesis on family business and succession.
What did you discover when you began to delve into the world of succession?
Well, I was most interested in figuring out if there was any truth in the saying that ‘the first one inherits, the second develops and the third destroys’. From rags to riches in three generations and back again. I was also interested in the families where there are many different individuals and interests, what unites them? What can we learn from them? Do they all live happily ever?
And I started finding out that in families that have made it through three or four generations of business, there has usually evolved a system for thinking and manoeuvring in this territory – a system not about the rules and the answers, but a system for how you talk about it, and the processes you organise to get to the rules and answers. Because of course, the answers and the rules are different for every family.
And the families themselves are all different too, aren’t they?
Yes, of course. In FBN Sweden, we have a majority of small and medium-sized family businesses and they are in all kinds of industries and activities. In terms of size, they vary from a nuclear family to not just a family tree, but a family forest there are so many individuals involved!
In my own capacity, I typically advise really large, complex family systems, generally at least a hundred shareholders. The sort of family get-togethers where everyone has to wear a name tag. These businesses would either be long-established or they would have grown very rapidly.
They’re all different, of course, but whether it’s a small family with two or three siblings or a huge family with more than a hundred shareholders, you must pay attention to every single person. Because in any family, it just takes one grain of sand to make everyone itch!
What are some of the succession challenges that family businesses struggle with?
I think a lot depends on which generation you’re dealing with. If you’re moving from first to second, you have the challenge of collaborating when you’ve been used to making all the decisions, and you have the challenge of letting go, which is not always easy.
For the next generation, you have the challenge of siblings learning to work together and make decisions as a team, even though they have grown up as competitors – for the love of their parents; for visibility, for recognition.
Then in the third generation, you often have cousins coming into the picture who don’t have the same parents, who haven’t been brought up around the same kitchen table as the siblings, who haven’t heard the same stories [about the business]. There might be different levels of wealth and different interests and dependencies, which can create complexity. But again, the governance system has to work and embrace all the individuals involved.
Do you think succession is overlooked or even avoided by some families?
Definitely. It’s there every day but it’s not an everyday topic. You can understand that. But families can work towards it by focussing on the other things like collaboration across generations; not only how we transfer the authority but how we talk about it, how we make decisions, how we get along.
First generations don’t think about these things because they’ve been entrepreneurs all their lives, building the company and doing business. It’s often the succeeding generations who have to push and ask: 'Why are we doing this? How do we govern this? What do we do? What are the responsibilities?’
So, there’s no set of rules?
Not really, it’s more about finding a process that works for each family. There’s an old-fashioned English word that I love called ‘prattle’ and for me a big part of success in family business is the way brothers, sisters, parents, cousins can prattle and talk about the business. You need to figure out your own purpose and the purpose of the business: why are we doing this? What are my ambitions, what are your ambitions? And most importantly, what are our shared ambitions?
If you can create an environment with a lot of prattle and an understanding of individual and shared purposes, then you have created a process and that can lead you to the principles or rules. This will be the basis for a responsible ownership and a clear governance of both the family and its enterprising activities.
What are the risks if you don’t manage or attempt to create a process?
Huge misunderstanding. Power struggle. Conflict. We know that in any organisation, in any human system, there will always be different needs – think about the cousins coming from a different kitchen table. And the only difficulty of these different interests is when the resources available cannot meet the needs of everyone. If you have the rules for a process and everyone understands them, then in theory there is no conflict. But if you don’t, very often the fighting starts.
Emotion plays a big part in all of this; do you find yourself playing the role of counsellor or psychiatrist?
Absolutely! One business owner told me that there’s 80 percent emotion and 20 percent technique – laws, taxes, structures and so on. I would say if you can figure out the emotional needs then you should be able to figure out the technicalities too. It’s about working out how to create a governance structure that takes into account all those emotions and relationships. And again, if you get beyond the third generation, it becomes a little easier.
What would your advice be to an Irish company that’s struggling with succession?
In all honesty, I would advise them to join Family Business Network. There they will meet others who have the same challenges and that in itself can be very comforting, just to know that you’re not the only one in this situation. You meet other families, learn from them, share your own experiences, and you can also use the car journey or the train journey to ‘prattle’ about what you’ve heard! At the very least, any family that’s finding it hard to deal with succession should seek expert advice.
When did you get involved with the FBN?
We started FBN Sweden in 1993. From my own studies and from talking to families, the founding board felt strongly that we needed to teach and prepare people for ownership of a business. We are very good at teaching the principles of management, but we don’t really teach the principles of ownership. That’s the main theme of my speech here in Dublin – the roles and responsibilities of owners.
Any final words on succession?
A business owner in Sweden once told me that the key to succession planning is simply to have the right people die in the right order at the right time! Preferably in the right country. But you can seldom control nature so it is better to be prepared because luck favours a prepared mind.