Succession lessons from King Lear

All over the world the leaders of businesses which benefited from the post-war economic boom are leaving the stage. Albert Frere, Belgium’s richest man, has retired at the age of 89. In recent weeks Takeshi Taketsuru, the man behind the Japanese Nikka whisky brand, and Ena Baxter, who turned Scottish soup and condiments brand Baxters into a global phenomenon, both died at the age of 90.

Even those who are clinging to control can’t for much longer. Indonesian patriarch Eka Tjipta Widjaja is 91, Australian-American media magnate Rupert Murdoch is 83, Warren Buffett is 84. Chung Mong-Koo, the chairman of the Hyundai Motor Group, is 77, and Hong Kong mogul Li Ka-Shing is 86.

The baby boomers – those born between 1946 and 1964 – are starting to say sayonara, leading to the largest transfer of wealth in human history. WealthX estimates that $16 trillion will change hands over the next 30 years. In Germany’s Mittelstand alone, 5,000 family businesses are expected to transfer ownership to the next generation in the next five years. A third of Australian family business CEOs are over 60.

But how are the boomers handling their impending retirement? From a succession perspective, a growing body of evidence suggests “disastrously”. A recent study of family business owners in Australia and Asia found that just 20% had formally considered a structured succession plan, and only 2% had implemented one.

Another report found that 40% of American family business heads will “find it difficult” to hand on the business to their successor, and half of next-generation family members thought succession was getting more difficult because of the age gap between the current and future business leaders. A study of 5,000 family firms in the UK found that 90% had no governance or succession plans. 

These statistics might make you think of family business heads as crazy old King Lears, refusing to face reality or make proper decisions, then making a hash of it when they do. But a recent research paper by Leon Levin and James C Sarros of Monash University in Melbourne, Australia, suggests that things are more complicated. They identify three psychological “foundations” on which a family business leader’s reluctance to plan succession might be based.

The first is about identity. Many business leaders’ personalities are tangled up with the empires they have built, and those “whose identities were intimately intertwined with that of their family businesses were less likely to initiate any succession plans.” This raises a “unique agency cost” because “such leaders place their own interest in maintaining involvement in a business ahead of the best interest of the business.” Such people find it hard to let go.

The second is that the leader is thinking primarily of the family. Levin and Sarros found that often “a family business leader would not tolerate non-family involvement in decision making, irrespective of the competency of the individual” and even found cases where they closed the business rather than allow non-family members in. In these cases, the business is perhaps seen as a tool for bringing the family together first, and a business second. Odd as it might seem, the family head is willing to sacrifice the business if it damages the family. 

The third case is where the business matters, but the family head can’t let it go. Levin and Sarros found that in many cases even when the family head understood the value of non-family managers and employed them, “they are reticent to allow non-family employees to contribute on an equal footing to that of family members”.

This, they said “is especially true in traditional Asian family businesses” and the “pseudo-meritocratic” promotion of family members alienates non-family managers. In this case family heads refuse to take professional advice, and surround themselves with younger family members who – understandably – feel they can’t raise the issue of retirement.

All of these problems stem from the psychology of the business leader, and are probably unconscious to some degree. Knowing that these pathologies are there doesn’t cause them to instantly vanish, of course. But it’s worth remembering that while two of King Lear’s daughters wrote him off as a crazy old man, it was the one who tried to understand him who kept his kingdom together.