Ownership Succession: Creating an Effective Siblings Partnership

The Case of Martini Family

At the age of sixty-two, Giorgio Martini decided to hire a chief executive officer (CEO) to lead the company he had founded over thirty years prior. The choice was motivated by the need to professionalise the business and carve out more time to contemplate growth.

In his family, no one objected when the decision on the change of leadership was announced at a Sunday lunch: ‘I have decided to take a step back! ’ His wife and three children simply took note of it. All the family members were aware of how tirelessly Giorgio had worked to secure a future for his business.

Five years after the appointment of the external CEO, the role of the second generation in the company has not changed. Davide, the eldest son who joined the company fifteen years ago, after his parents strongly advised him not to waste too much time with “little useful outside work experiences”, continues to serve as head of a commercial area. Meanwhile, Lisa, the younger sister, after spending some years at an international auditing firm, continues to deal with sustainability matters.

Giorgio has a third daughter, Laura, who never wanted to work in the company, preferring to pursue a career as an interior architect.

In three years, Giorgio will turn seventy, while Davide will cross the threshold of forty. In the family, it has always been assumed that the children would succeed their parents in ownership and in equal parts, but the subject had never been discussed openly.

No one had probed whether the siblings were truly interested in continuing the business. Here, too, the matter was taken for granted by the founder and his wife. When questioned on the topic, Giorgio once replied, ‘The ownership will pass equally to my children because I want to treat them the same.’ Giorgio’s wife, Lucrezia, added a note of colour: ‘The children love each other, but woe betide any special treatments. From a young age, all three were ready to claim what was due with a strong “me too!”. ’

Another matter never discussed was the functioning of the future ownership structure. For example, questions such as the following have never been raised:

• What role should the siblings have in a company led by an external CEO in the long term?

• After the external CEO, is it possible to appoint one of the siblings working in the business to this position if deemed suitable?

• Can it be envisaged that the siblings in the company might co-manage it as co-CEOs in the future?

• As owners – and none in an absolute majority position – are decisions made unanimously or by consensus?

Approaching his seventies, Giorgio realises that he has always postponed the most delicate aspects of the discussion on succession, not to disturb the family’s emotional balance or due to his limited capability to navigate the emotional tensions that such processes might arise.

In the second generation, Davide is the only one who had long foreseen some delicate issues on the horizon. However, he has been careful not to confront his sisters because he wanted to first understand what his father had in mind.

Recently, Davide asked his father when he could enter the board. His response was unusually clear and quick: ‘As long as you and your sister cover organisational roles reporting to the external managing director, it is preferable that you are only invited to the board, not to give a signal of nepotism.’

From Founder to Siblings Partnership

The story of the Martini family captures a recurrent situation: A founder who tackles the issue of generational transition with a business-minded approach but is less adept at navigating family and ownership dynamics. A group of siblings who are not supported in becoming business partners and who are not even capable of confronting the founder as a unified group. Each plays their own game.

Theory and practice leave no room for doubt; the transition from the first to the second generation is one of the most complex. Experimenting with or postponing decisions is the worst strategy to undertake.

The complexity inherent in this transition stems from two fundamental aspects. On the one hand, the transition often occurs in an environmental context characterised by many growth opportunities, while within the company, there is a widespread desire to professionalise the organisation to set up for managing new complexities. These challenges are significant and absorb a lot of energy and attention from the founder when faced.

Founders are usually more interested in the profitability and competitiveness of the enterprise than in generational continuity, embracing the motto “business first!”, which relegates family matters to second place. On the other hand, such a transition requires a monumental change in governance and power distribution, which is not easy to accept, from monarchy to oligarchy.

A team of siblings in ownership (the same could be applied to a team of cousins raised as brothers and sisters) is a sort of oligarchy that must gently replace a monarchy and can work effectively only if the individuals who want to be part of it have internalised the principle of being able to work in a team and act on consensus.

The key word in these instances is teamwork, which does not mean that everyone must do the same things or occupy the same roles. The ability to teamwork is particularly associated with the development of four key abilities in individuals:

• Listening.

• Communication.

• Conflict management.

• Shared decision-making processes.

The literature on family business also highlights several critical success factors for creating an effective team of siblings. Some of these are outlined below.

1. Shared Purpose: The team members must be clear on the purpose by addressing a fundamental question: Why do we want to work together as business partners in the long term?

2. Shared Vision: The team must be able to formulate – as owners – long-term objectives for the business so that those who hold governance and leadership roles in it – both family and non-family members – know what the owners’ expectations are and how to measure success in business.

3. Shared Values: An effective team shares strong values (i.e., a set of behaviours, principles and assumptions that influence family relations so that they remain functional rather than dysfunctional). Values favouring the functioning of a team are, for example, respect, responsibility, integrity, transparency or trust.

4. Team Objectives: Besides the vision, a team must also focus on action by establishing organisational objectives concerning its own functioning. For example, at a certain stage, it may be appropriate to work on defining policies that concern the relationship between family and business.

5. Formalisation: A team is effective if it formalises its own protocols of functioning, not leaving everything to informality, which is fertile ground for misunderstandings, if not actual conflicts. Formalisation may require the design of an adequate governance that clarifies roles, processes and responsibilities.

6. Managing the Insider–Outsider Dilemma: A sibling partnership may be composed of family members working in the business and family members not working in the business (insiders and outsiders). To avoid differences in thought, expectations and interpretation of events jeopardising internal cohesion, it is important to clarify well what, when and how to communicate to team members in their capacity as owners. Good management of the insider–outsider dilemma, moreover, does not mean that any information about the business should be available to all but that it is necessary to clarify which information should circulate in the ownership and for what purpose.

7. Involvement of Spouses and Long-term Partners: A team among siblings works better when it clarifies – without beating about the bush – the role that spouses and long-term partners can play in the ownership and family dynamic. It is known that “keeping them at the door” is not a great choice in the long term.

8. Leadership Definition Capability: A team of siblings has the task of choosing the future leadership. If possible, it is recommended to separate the decision of who will be the family leader from who will be the business leader. An effective team is one that makes these types of choices, prioritising reason over the emotions of the moment or over any jealousy or recrimination.
   

The Role of Parents

While siblings are encouraged to take the initiative to transition from a monarchy to an oligopoly, it must also be recognised that parents play a key role in creating the preconditions for success in changing the form of governance.

Parents are the first role models for children when they confront the concept of a team. If they work well together, they set an example. If they encounter difficulties as a couple, they should strive to explain to their children that these issues will not diminish their desire to take care of the children jointly.

By educating their children, parents can guide them to work as a team and appreciate the value of unity from adolescence. Managing the relationship with their children can also prevent or mitigate the phenomenon of sibling rivalry so that adolescent dynamics do not continue into adulthood, negatively affecting the functioning of the ownership or the company.

For instance, during adolescence, children should be involved in projects and activities that lead them to work together, teach them to accept personality and behavioural differences and create a set of shared values to appreciate how unity is strength and a form of advantage for individuals. Additionally, it must be clarified that fair treatment does not automatically mean giving everyone exactly the same things or offering the same opportunities.

Regarding sibling rivalry, it can be prevented or reduced when parents avoid adopting attitudes of preferential treatment for one child or exercising control over their lives, even in adulthood, to influence their personal and professional choices, thereby putting them in competition with each other for more parental affection and attention.

Similarly, it is necessary to avoid the temptation to resort to triangulation in managing family relationships. When a parent, rather than giving feedback directly to one of their children, communicates through another, a triangulation is established. These behaviours create animosity between children because they foster a climate of continuous comparison and mutual criticism and put them in competition to earn the praise of the parents.

Recommendations for the Martini Family

Giorgio has been an exemplary founder, but he arrived late to the generational transition, as the children, now adults, have established and internalised their narratives of relationships and family dynamics.

Davide is the least content among the siblings with the current situation. On the cusp of forty, he is beginning to reflect on the first part of his life: what he has built, what he has learned, what he could have done differently, how content he is and what he might or intends to do in the future.

For the Martini family, the opportunity still exists to transfer decision-making power to the new generation, starting with two fundamental principles:

1. The founder must plan his swift and clear exit from the role of “leader” both of the family and of the business to avoid creating excuses for the siblings. At this stage of his life, he could transition into a mentorship role.

2. The children need to take greater initiative and work cohesively to demonstrate that teamwork among them is still viable. However, this will require substantial effort, as the critical success factors for a successful partnership need to be established. They will need assistance from a third party to facilitate the dialogue and pose the necessary, even if uncomfortable, questions that have been neglected in this family.
   

Lastly, if any of the children are not interested in becoming business partners with their siblings, it should be promptly recognised, and a solution should be found to buy them out. Exiting from a business partnership is not a failure as a family member, nor is it a betrayal of the past.

Author: Paolo Morosetti