Who’s the Right Family Member to Take Over Business? By JACQUELINE FOX Staff Reporter There’s a little movie out in theaters right now making big waves called “Whale Rider.” The film’s premise may strike a chord for the heads of family owned businesses in the Valley with family members in line to one day take over the business. In “Whale Rider,” the obvious candidate to take over leadership of a certain Maori clan has failed to demonstrate the ability to handle the job, much less a desire to do it. In addition, no other member of the clan that meets traditional requirements for the task seems to fit the bill on other important levels either. Ultimately the one individual that proves worthy of the job becomes the story’s central surprise. This same phenomenon is common in the world of family owned businesses, and it’s among the most troublesome of issues for the CEOs who run them. Perhaps the family member with the most experience lacks sufficient leadership skills. Or, maybe they possess the skills and experience, but not the desire, while another family member shows promising interest and motivation, but lacks the experience and training. According to the experts, many of the headaches that go hand in hand with choosing a successor can be eliminated if plans are put into action early on. “The first step is to eliminate from the running, anyone who isn’t qualified,” says Ralph M. Daniel, founding director of the Center for Family Business Dynamics, which is based in Santa Barbara but serves all of the San Fernando, Conejo and Antelope valleys. “There’s nothing worse for a business than putting someone at the helm who isn’t really interested in the job. It’s better to put them out of the running right from the start, if you care about the future of your company.” National statistics suggest that, over the next five years roughly 40 percent of all family business owners will attempt to pass the reins on to the next generation. Yet, according to Daniel, only about a third will do so successfully. Although, in many cases, this is due to the fact that large numbers of businesses are sold to non-family members before a second generation takes over, in many instances, failure to get to second-generation status stems from a lack of poor planning. Start early Early stewardship among family members is vital: children should be mentored and taught the ropes as soon as elementary school, experts suggest. It’s also a good idea to conduct regular family meetings or “councils” that, in addition to providing educational forums about the business, also include what the experts call “de-entitlement training” to show that the family business requires sacrifice and should not be seen as a ticket to wealth or power. “I would recommend that a business owner begin making succession plans five if not 10 years before they plan to step aside,” said Daniel. “I’d begin by setting up training programs for those family members who are good candidates for the top post.” Experts also recommend that next-generation members move up in the ranks alongside other employees and that their compensation be based on market trends, not their family connection. Daniel also suggests hiring an outside consultant to conduct evaluations of the family members under consideration, both to eliminate parent/child conflicts and to obtain objective assessments. Obstacles to success Cultural issues among certain ethnic groups often get in the way of a leaders’ ability to fairly and responsibly chose the right successor. “In some cultures, by tradition, there’s an automatic desire to choose the oldest family member to take over a business and in others, there’s a propensity to chose the man over a woman,” he said. “This is another area where hiring an outsider helps.” So what do you look for? “Identify those family members who take initiative and go above and beyond the basic requirements,” said Daniel. “Look for the family member with a vision for the company or the product, and the one who has already demonstrated a plan for implementing that vision,” he added. Other traits include flexibility, adaptability, and a commitment to discipline as well as the long-term health of the company. Family News Evaluating the Situation A Sherman Oaks-based company offers free-on line assessments for family owned businesses, which aims to help firms evaluate their succession plans and needs. Solution Sage allows family business owners and key family members and managers to take a Family Business Assessment survey. The answers to the survey are run through a series of diagnostic evaluations and then used to produce a customized, 18-page report that will identify the participating business’ strategic and succession risks, as well as strengths and weaknesses in its current succession plans. The business is run in partnership with Nelson Dodge and Ralph M. Daniel, founding director of the Center for Family Business Dynamics. You can access their Web site at www.solutionsage.com. Defense Funds A U.S. Bankruptcy Court judge in New York ruled that John Rigas, fallen Adelphia Cable heir and his three sons could use cash from their company to cover their legal fees. In addition, Judge Robert E. Gerber ruled that the Rigas sons, Michael, Timothy and James, could also access the roughly $15 million generated by other cable companies they operate. Adelphia lawyers argued that the Rigas brothers, who hold assets said to be worth more than $15 million in other cable entities, were having trouble selling properties to raise defense funds and was forcing them to rely on Adelphia for cash. Adelphia has a cable system in the San Fernando Valley. They are believed to be facing overdue legal fees of roughly $2.5 million. Adelphia attorney George F. Carpinello aims to appeal the decision and there is wide speculation that banks will attempt to take control of their other companies, including Coudersport Television Cable Co., to block the Rigas family from tapping those assets.