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Money, blood and power: Family businesses in a recovering economy

Published: Monday, Feb. 4 2013 11:50 a.m. MST

Family businesses are more optimistic, but leadership succession is still difficult, experts say.

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Family businesses in the U.S. are getting more confident about the future — 93 percent telling a survey by PwC that they are optimistic about their growth prospects, exceeding the 81 percent confidence level of people in family businesses around the globe.

However, one family business expert doesn't believe that improving American confidence has shown any specific strength among family businesses. Quentin J. Fleming, author of "Keep the Family Baggage Out of the Family Business" says the confidence rating shows family businesses are very aware of what is happening in the general economy.

"I don't know if they are experiencing optimism," he says, "but it is clearly not pessimism."

Succession

Another indication that the improving economy may be affecting the way family businesses are run are attitudes about succession.

The survey by PwC reports that 67 percent of family business leaders are planning to hand control of the business to the next generation. This is the highest percentage since 2007 and is up from just 55 percent in 2010.

Larry Colin, author of "Family, Inc.: How to Manage Parents, Siblings, Spouses, Children, and In-Laws in the Family Business," says, "Succession is the biggest problem family businesses face."

Fifty-two percent of family business leaders say they are going to transfer both ownership and management to family members, while 24 percent say they will pass on ownership but will bring in outside management to run things.

Fleming says families have a feeling that the greatest thing they can do is give the business to the kids to run even though the kids' interests and abilities may lie elsewhere. The PwC survey says 50 percent of family business leaders say they are concerned potential successors don't have the drive and aptitude to lead the business.

"They push it onto people who may not be the best to run the company," Fleming says.

If the kid doesn't want the job, they are seen as disloyal. In other companies, the parents do not let go of the reins. In other situations the designated son has less interest and ability than a younger son.

Colin says some families will just sell the business to avoid the problems of succession entirely.

"Blood, money and power when together are an explosive combination," Colin says.

But Colin still thinks family businesses can do well.

Growth and innovation

"The reason that family businesses succeed," Colin says, "is because they see innovation. They see opportunities which bureaucratic organizations take a long time to see. Bigger organizations do processes better. Entrepreneurial organizations take opportunities much more quickly."

The PwC survey says 58 percent of family businesses see innovation as their top challenge over the next five years.

"Nothing will beat a well oiled, well seasoned family business," Colin says. "Nothing. No way. But, most family businesses become dysfunctional."

Fleming believes part of the pressure that causes dysfunction comes from family businesses trying too hard to grow. "They are told they have to grow or die," he says. "But we shouldn't want growth for growth's sake. Businesses coaxed into growth can get into trouble."

Colin, says his family had to sell its 92-year-old business after it grew to $200 million annual sales and started experiencing problems.

"Obviously we had something very right," he says. "We had a mission and we saw the mission as benefiting our entire family. … But once you end up with entitlement mentality people, then you are in the face of ruin. You can't fix entitlement-mentality people. It's not fixable."

EMAIL: mdegroote@deseretnews.com, Twitter: @degroote, Facebook: facebook.com/madegroote

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