From Generation to Generation

By Lindsay Konzak

January 22, 2010

More about: Human Resources, MDM Blog, Management/Strategy

Recent sales of family businesses to consolidators begs question: How many family-owned distributorships have succession plans?

McKinsey Quarterly has an interesting piece on its Web site this month about "five attributes of enduring family businesses." The article addresses the significant performance and governance challenges with passing a company from generation to generation. McKinsey says that "less than 30% of family businesses survey into the third generation of family ownership." But for family businesses that do last longer than that, McKinsey contends they "tend to perform well over time compared with their corporate peers." (You can read the McKinsey article about what makes successful family businesses successful here.)

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Brent Grover of Evergreen Consulting told MDM for an article a couple years ago that succession planning is about preparing for the inevitable departure of owners and managers, and having all the right pieces in place when that happens. He asked: What's going to happen when you're not there anymore?

We've seen a few examples recently of family distribution companies who have decided to sell to larger consolidators, including Drago Supply (read article) and BC Bearing – both family-run businesses that sold (or in BC Bearing's case, agreed to sell) to Motion Industries.

But Grover says that many distributors haven't moved forward with succession planning for a few reasons: They don't know what is out there, or can't decide what to do with the business. Should they keep it or sell it? Can the children run the business, and do they want to? Should they sell the company to employees? Grover says owner-managers also sometimes have not invested in a succession plan or in building up a strong management infrastructure because they may have a feeling of immortality or invincibility, with the idea that no one else could do as good a job as they have. On the other hand, some owner-managers just may not know where to start or what is available.

Read more about Grover's take and two distributor's experiences with succession planning in this article: Succession Planning – What's Next?

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