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Kevin O’Leary on a costly mistake too many family businesses make

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Some valuable companies like Hermes demonstrate that there is brand value preserved in keeping businesses under family control. Others demonstrate that family ties can help restore trust in a damaged brand – Toyota after the unintended acceleration crisis in 2010 being an example.

But those cases are not typical.

For every family business that succeeds in transferring control from one generation to another, it is likely that many family businesses will fail due to mistakes in succession planning. According to entrepreneur Kevin O’Leary, one of the biggest mistakes first-generation founders make is when a patriarch or matriarch thinks the right decision is to leave the business to their children. their.

Given the number of family-controlled companies in the US and around the world, that’s a big deal.

The majority of businesses in the US are small and medium-sized private companies, and many were founded by a single entrepreneur and have been very successful, but O’Leary says that when it comes to family businesses, , not just for the money but for the relationships.

“I’ve seen this happen in my portfolio…it’s heartbreaking to see people in the same family tearing apart families,” he said. O’Leary said at a CNBC event in August.

This breakup is most damaging when it comes to family succession, and often results in the wealth created by that founder being lost over time.

“When businesses are wildly successful, it’s often because the founders, father or mother, have great executive skills, but those execution skills may not be present in the next generation. That’s why we’ve seen American wealth evaporate within four generations,” said O’ Leary.

Leadership experts who study family businesses and the people who grew up in them say There is truth in O’Leary’s warning about the unique dangers and emotional nature of family business succession planning.

“Great business leaders have learned to put infrastructure in place, whether it be from their own homes or, better yet, from the professional ranks,” says O’Leary.

This is not to say that children are denied access to family wealth or a say in its preservation, but they may lack the skill set to thrive in business. The best founders, says O’Leary, know when the smart move is to make covenants to have professional managers oversee the business, while retaining the board seat. for children.

A prominent example from the US: Berkshire Hathaway. Warren Buffett did not choose one of his children as his successor, but has placed his son Howard on the company’s board for many years and recently added his daughter Susan to the board. Governance, not for operational decisions, but to maintain a “culture.” Peter, Buffett’s son, is the director of the Susan Thompson Buffett Foundation, the organization that manages Warren Buffett’s philanthropy and is recognized named after his late wife.

“All three of my children are dedicated to maintaining the culture of this place” Buffett to Omaha World-Herald last week following the company’s most recent earnings report. “They have an unusually large amount of devotion to that.”

O’Leary says that in the majority of cases he’s seen, the founders themselves say they’re passing the business on to a child acknowledging that the child doesn’t have the same skill set they had when they were young. establish a business.

“That’s how businesses lose all their value in just a few generations,” he said. “This is time-proven. It’s history. Real execution skills are hard to find.”

https://www.cnbc.com/2021/11/14/kevin-oleary-on-a-costly-mistake-too-many-family-businesses-make.html Kevin O’Leary on a costly mistake too many family businesses make

Emma James

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