Owners leaving a family business have to make many rational decisions, but they also struggle with strong emotions, such as sadness, anger, grief and even depression.
In this podcast episode, María José Parada, Lecturer and Esade Entrepreneurship Institute researcher, and Leif Melin, Professor Emeritus of Strategy and Organisation at Jönköping International Business School, discuss how family business owners experience grief and emotions when leaving their business.
María José Parada: We’re here today with Professor Leif Melin from Jönköping International Business School. He will share what family business owners experience when they leave their business. Leif, thank you very much for being with us here today. It's a pleasure to have this conversation with you. One of the first questions that I would like to ask you is, what does owning a family business mean for its owners?
Leif Melin: Great to be here. We have done a lot of work on the meaning of ownership and we have developed a framework that we labelled “The logic of family ownership." This logic contains seven dimensions. The first one is about concentrated ownership and the visibility of owners compared to listed companies that have invisible owners. In a family business it’s easy to identify who the owners are.
The second dimension is about stability, both in ownership and in management positions. For instance, the tenure for a family CEO could be 1520 years, compared to a listed company where maybe it's five or six years on average. Also, owners stay across generations, which means that the power of decision-making is focused on the same individuals over long periods of time.
The third dimension is about long-term orientation, that is, investing for the future. This could mean a time perspective of 20 or 30 years, focusing on investment, product development, innovation and so on. It also means adopting a long-term orientation and looking at the transgenerational development of a firm where the next generation will eventually take over.
Family businesses have more flexibility and governance structures
Family businesses also have more flexibility and governance structures, including informality, flat organisation dynamics and fast decision-making. It’s also about scepticism towards capital markets; they don’t like to be controlled by banks. They are hesitant about becoming listed – even if many are, they still don’t want to have that publicity.
I think the most important thing is their bonding and emotional attachment, their identification with the business.
María José Parada: That's very interesting. You recently worked on a paper related to family business owners and the emotions involved in leaving their business. What do family business owners experience when they leave their business?
Leif Melin: What we identified in our studies is a loss of something that is very important: a loss of the family members’ identity. They question, “Who am I?” because of the strong feelings involved in being a part of a family business. Their identity is related to the business.
Leaving a family business may be forced or it may be deliberate. We have also looked at when people deliberately leave. In this case, you would expect them to not encounter any problems but, even in this case, we see reactions of grief among the family members, such as them mourning the loss of the business ownership.
Leaving a family business can result in severe reactions such as confusion, feelings of emptiness, sadness, anger and even depression
That type of mourning can result in severe reactions such as confusion, feelings of emptiness, sadness, anger and even depression. But during the process of selling a family business, there is also satisfaction. The money they obtain could perhaps help owners to start a new life or take on new entrepreneurial opportunities. Leaving a family business can also trigger a feeling of liberation of ownership – not having this responsibility anymore may help former owners sleep better at night.
María José Parada: You talked about the conflicts that may arise between generations in a family business. To what extent did you see in your study that this was something worth discussing? Can a lack of communication become a big problem if they are not able to express their feelings about what the family business means to them?
Leif Melin: Losing ownership is a problematic process for both owners and family members, but then it's also about losing relationships. There could be conflicts about selling, conflicts between siblings that come to the surface in dramatic situations like this... We found that leaving can threaten relationships within a family. In the case we examined, the father and sons lost their relationship and the love between them disappeared. It was a very dramatic process.
Leaving a family business can threaten relationships within a family
María José Parada: Probably some of the key questions I would ask myself if I were to sell my business would be: what will I do after I leave my business? What will I do with my time? What will I do with my money? What did you discover in your study about family owners leaving the business and their activities afterwards?
Leif Melin: This sense of liberation of ownership was an interesting outcome. In the beginning it was dramatic and there were also tensions within the family, but eventually, there was some sense of liberation of ownership. That feeling of liberation could then be used positively overall, by using the money and the time to invest in new businesses.
I think that is the most common outcome for family business owners: they don’t leave the business world when they quit, they come back in new ways and new permutations, with what we used to call “serial entrepreneurship”. They continue to invest in new businesses, different sectors and building up a portfolio of entrepreneurship. So, it’s not about selling the business and playing golf.
María José Parada: This is very interesting, because this probably takes us to the idea of a family business versus a business family. Even if you leave one type of business, you can probably continue to be a business family engaged in different entrepreneurial activities as you were saying.
Leif Melin: In our case, the different family members eventually found new business opportunities, following the conflict related to their departure.
María José Parada: What could be the takeaway points for business families and practitioners?
Leif Melin: An important aspect related to succession in family businesses is, for instance, the importance of open communication. If you start to talk about leaving a family business that has been running for six generations, you need to sit and talk in advance about what the possible implications of selling the business are, both from a positive and negative point of view. You need to be aware of the types of grief and mourning processes that may appear after selling something as close to you as a family business.
It is also important to understand the power of the meaning of ownership in a family business and its relationship with the meaning of life for individuals in a family.
María José Parada: This is a very important point because a family business is part of the life and identity of a family. Thank you very much for this conversation and for revealing insights for family businesses or business families who may leave their businesses at some point in time. Thank you, Leif.
Leif Melin: Thank you. Nice to talk to you.
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