Paul Karofsky is the Founder and CEO of Transition Consulting Group, based in Framingham, Massachusetts and Palm Beach Gardens, Florida. Paul and his son, David, consult with families in business together about the challenges they face concerning the transition of leadership and ownership. Their goal is to facilitate communication and relationship-building among family members.
Paul Karofsky on why transitions in family business work well only half the time; on why it’s sometimes hard for the older generation to let go; on what questions families need to ask themselves; and on why occasionally progeny shed tears of relief that they are not the right fit to take over.
Q: Generally speaking, how well do leadership and ownership transitions go in family enterprises?
A: Approximately 50-60% of the transitions go really well. The others have hitches that can vary from serious breaches of trust to confusion about how to do the transition. There’s often a lot of fear and anxiety on the part of the older generation around letting the younger generation take hold. Can the kids handle it? Can they take the company to the next level? And, if so, what am I going to do with the rest of my life? And what if the kids screw up?
Q: What types of problems do you encounter when counseling families on business succession planning?
A: I encounter older people with middle-aged “children” working in the business, and the owners either can’t or won’t let go. I encourage people in that situation to commit to a date to retire. Occasionally I run into someone who has brought their child into the business, and when the child surpasses the parent in terms of success or effectiveness, the parent feels proud, but also uncomfortable. One of them complained to me: “Look what it says about what I couldn’t do.”
Sticky issues arise when the business founder wants to leave the business to the children. Who gets what? What if a child who doesn’t work in the business wants to sell it, to diversify? With a family enterprise, there is no cookie cutter to divide things equally. What if more than one child works in the business—who gets to be the boss? Or, if the company is left to one child and the business goes south, is that child to blame for bringing down the fortunes of his siblings? This latter scenario is an unreasonable risk for children not working in the business to assume, and an unreasonable burden for those who are.
Q: How do you help families resolve such sticky questions?
A: I start with basics: if the family does not serve the business, the business won’t be there to serve the family. The family needs to sit down and ask themselves, where are we going? What’s required of the next generation to get there? What knowledge, skills, experience, training? They need to try to make these evaluations objective.
Q: Specifically, what if the heir-apparent is clearly not up to the job?
A: We do anonymous 360-degree performance appraisals. There’s a process of progressive revelation to help the son or daughter to see that they are not the right fit. Surprisingly, progeny in that situation usually know themselves that they don’t belong. In the end, people know who they are and how they are perceived by others. Survey results confirm what they already know. I have seen some of them in tears—of gratitude, that they’ve been given permission not to enter the business. People need to have a passion for what they do. Otherwise they won’t be happy and the company will not be successful.
Q: Any overall observations about family businesses?
A: There is no greater joy than working with someone you love and having success. When it doesn’t work, though, the pain, stress, guilt, bickering, nastiness, and sleeplessness can make the family enterprise is like no other hell on earth.