How to succeed with a family business succession

The chief financial officer of Tyson Foods made a confession to investors this week. After running through its revenues, John Randal Tyson added a personal note: “I’m sure you’ve seen the news about the incident involving me. I’m embarrassed and I want to let you know that I take full responsibility for my actions.”

The news was that the 32-year-old son of Tyson’s chair, and great-grandson of its founder, had been charged with public intoxication and trespassing after a stranger found him asleep in her bed in Arkansas. Rather than firing him — the likely fate for any non-family member — the US company has asked its directors to review his behaviour.

“Don’t forget he’s been involved in this business essentially his whole life,” Tyson’s chief executive Donnie King responded when analysts asked why Tyson junior was in a job normally occupied by seasoned executives in their fifties. True, but that is usually the qualification to become a king or queen, rather than the finance director of a top 500 US public company.

Red Bull has handled its own succession more wisely, appointing three executives to succeed the founder Dietrich Mateschitz after his death in October, rather than his son. “I do not believe one should be both an employee and a shareholder of the same company,” wrote Mark Mateschitz, who inherited his father’s 49 per cent share in the Austrian energy drink maker.

This does not mean the scion will leave the others alone to run operations including Red Bull’s Formula One team. “I will . . . express myself in a way that makes sense to me and as I find necessary,” he said of becoming co-owner alongside the Yoovidhya family of Thailand. It is as powerful to hire and fire others as to do their jobs yourself.

Succession is the most emotionally taxing question facing entrepreneurs. As they get older, will they sell their businesses to outsiders or appoint one of their sons or daughters to be both heir and boss? The challenge is looming for many 20th-century founders: more than 1.5mn owners of small and medium-sized family companies in Germany are nearing retirement.

The struggle is evident at public companies that remain under family control, such as Fox Corporation and News Corp, both of them dominated by 91-year-old Rupert Murdoch. He has installed his son Lachlan as his probable successor after decades of familial manoeuvring, as faithfully caricatured in the HBO drama Succession.

Bernard Arnault also seems to favour a familial joust. His five children are now working at his luxury group LVMH and he has extended his mandatory retirement age to 80. This provides time for a face-off and invites the sort of speculation about who will succeed him that Lachlan Murdoch once described to me as “a pain in the ass”.

I can see why this kind of contest appeals to patriarchs: King Lear-like, they give their adult children an incentive to pledge loyalty and affection, and use them to reinforce their control. If you have embodied a company for many years, the idea of it being steered after your death by a hired hand with an MBA must be galling.

The benefits for the younger generation are less obvious. If several compete for advancement, it feels like a sure-fire way to ruin family gatherings. Even if there is only one child, the awkward question lingers: would this person have a chance were it not for their name? The answer is usually no.

This is not to deny that family control has some advantages. Family enterprises are often more profitable and have a longer-term focus than companies run by professional executives for many investors. Having someone in charge who instinctively loves the business and was raised to value its purpose can be a strength.

Nor is it absurd for family members who stand to inherit stakes in companies to get to know them from the inside. Whatever happens, John Tyson has been taught a hard lesson about how executives of public companies need to behave, and the discipline of investor scrutiny. It is healthier to be publicly shamed than to remain a gilded youth, waiting idly to inherit.

But that need not involve successors being managers as well as owners. One study of Danish companies found that family successions produce worse results than the Red Bull approach of installing professionals to take over from the founder. As controlling investors, families retain plenty of power to influence companies anyway.

Some heirs have realised this: John Elkann, scion of the Agnelli family that controls Ferrari and Juventus, does not run them himself but oversees them through their boards and his family holding company. Marta Ortega Pérez, daughter of Inditex’s founder, became chair of Zara’s parent group last year, but the day-to-day responsibility lies with a chief executive.

It is only natural. After years of observing how businesses operate, many of the emerging generation must have noticed that being publicly responsible for everything has drawbacks. Becoming the successor does not require running the entire show.

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