Q&A with Rania Labaki

Dr. Rania Labaki, Associate Professor of Management Sciences at the University of Bordeaux IV and researcher specialised in finance and family business management, is an expert when it comes to the many challenges that family businesses can face with the next generation. In this Q&A, Dr. Labaki gives valuable advice on how to successfully manage transitions between generations while respecting values and regulating emotions.

How can family businesses transfer family values and knowledge to the next generation?

Family businesses have a unique competitive advantage compared to other businesses. This advantage stems from family values and tacit knowledge that are transferred from generation to generation. This transfer is a crucial, ongoing and long-term process. It normally starts informally at a very early age; whether it is at the dining table, during the traditional family gatherings, or even in the company itself, by listening to family stories and business issues and the way they are dealt with, the next generation progressively develops business skills and gets inspired by the founder‘s values. This process is key to encourage favorable attitudes of the next generation towards their roles of successors.

At later stages of the family business this informal process can be complemented by formal family governance mechanisms. When the business spans many generations, it is often more difficult for the senior generation to instill the family values in the next generation. A family charter outlining the family business values contributes to this endeavor. The process of setting up a family charter is however more important than the document itself. All generations should be encouraged to take part in the process of writing the charter by identifying their values, illustrating them, and reflecting on their implementation. This will make of the next generation an integral part of the process by being clearly aware of the values and taking on responsibility to transfer them on to the future generation.

The organisation of family business-related workshops or regular company visits for the next generation also contribute to the development of knowledge and preservation of values. Involving the next generation into the family‘s social activities such as philanthropy or family foundations gives a practical opportunity for the next generation members to operationalise the knowledge and values learned, which they can later execute them at the business level.

The next generation should also play an active rather than a passive role by becoming value leaders. They should not take the family values for granted but also contribute to adapting them to the changing environment while maintaining their roots.

What are the measures that should be taken on the family and the business level to be prepared for the integration of the next generation into the business?

Over the life cycle, the family business generally evolves from a founder‘s ownership stage to a siblings partnership followed by a cousins’ consortium. It progressively spans an increasing number of next generation members. Starting the third generation there is a higher potential for family relationships to weaken; the emotional attachment to and identification with the family business may fade away. Family business managers should strive to motivate the next generation to integrate into the business while acknowledging that this should happen voluntarily and on a merit basis.

It needs in fact to be considered that the next generation members may have different professional goals that are not compatible with the family business industry or available positions. They might have conflicting interests with the generation in charge of the business‘ strategic and financial policies. On the other hand, they might be highly motivated to join the business but not have the professional and personal qualifications to do that. Family business managers should be careful in the selection process of future successors and make sure that their judgment is not biased.

Educating the next generation about the family business helps cultivating pride and responsibility and strengthens their identification with the family and the business. Enhancing inter-generational communication is also important because it keeps the next generation in the loop and fosters their desire to follow the path of their predecessors.

What are the most important educational tools that the next generation in family businesses needs?

In addition to the traditional requirements that pertain to any business, such as high level of education in specialisations that are congruent with the business activities and professional experience outside the family business, family business managers should provide their next generation with specific educational tools:

By encouraging the next generation to participate in family business-related events, family business managers provide them with a unique opportunity to interact with next generation members from other businesses all around the world, share their experiences and learn from each other in a confidential and friendly atmosphere. It is often at these events that the next generation members get to finally realise that they are not the only ones facing complicated family business issues.

Educational themes for the next generation should not only be focused on the business level but also address the personal, family, and social levels. In order to explore the related topics, the educational formats should also be diverse, ranging from case studies presentations by families, to interactive discussions with inspirational speakers and experts in different fields such as psychology, finance, management or governance, to group work among next generation members and/or senior generation members to stimulate collaboration and mutual learning.

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How can the emotional factor between the different generations in family businesses be regulated?

Emotions are an integral part of any organisation but are of particular importance in the family business. They emerge and influence two systems rather than one; the business system on one side and the family system on the other. Therefore, emotions triggered and/or expressed in the family can influence the business and vice versa. Notwithstanding the beneficial influence of positive emotions such as love and happiness in strengthening family cohesion and the convergence of family and business interests, negative emotions can also have a positive effect:

Emotions such as guilt might lead to reparative actions that enhance the future business performance, while emotions such as regret might lead to better future decision making.

What emotions should be regulated between generations and when? It is rather the discrepancy between the type of emotions felt and the type of emotions expressed, also called “emotional dissonance”, that may have dramatic effects and should be regulated.

The degree of emotional dissonance is highly correlated with the family business culture. In some cultures, the expression of certain emotions is prohibited in the family and/or the business. Oftentimes the expression of emotions refers to implicit rules in the family. Family members that do not abide by these emotional rules and express unexpected types of emotions might cause destructive conflicts.

Emotional regulation appears a relevant challenge. The family business CEO (Chief Executive Officer) should also play the role of the CEO (Chief Emotional Officer) regulating the family members’ emotional dissonance. By developing their emotional intelligence capabilities and setting up the right governance mechanisms they will learn more about the family‘s expectations and reduce the possibility of emotions leading to conflict.

From your experience, what are the biggest concerns the next generation has?

The biggest challenge for the next generation is undeniably succession. The low rates of survival of family businesses during succession (less that 5% of family businesses make it to the fourth generation) are a clear indication of the difficulties of passing on the baton from one to the next generation. The succession process encompasses several sub-challenges for the next generation: The major ones are overcoming resistance and maintaining good relationships between generations. In many cases, the senior generation is reluctant to let go and to trust the next generation with managing the business. Resistance to succession comes not only from the family manager but also from other senior family members who may feel threatened by losing power. Resistance can also relate to other next generation members who are fiercely competing against each other to grab the opportunity of managing the business. Added to this, there is the resistance of non-family stakeholders, such as employees, suppliers or clients towards new successor(s). The next generation members have to struggle in order to achieve legitimacy. This entails proving themselves on professional and human levels in the family business while being respectful to the senior generation. It also means being patient while remaining open to learn from the senior generation and showing understanding of the difficult psychological forces they are facing during the succession process.

Tharawat Magazine, Issue 15, 2012