When you have spent decades of your life building a business from scratch or managing it after taking it over from your parents, you may feel strongly about passing the company on to one of your children when you retire or die.
Passing not just an ownership interest but also a managerial or executive role to your children may seem like an ideal legacy and a way to provide a lifetime of stability. However, leaving the responsibility to manage a business to your child could do a disservice both to your child and to the business.
Your child may not have the skills to take over your role
Even if you have spent years trying to educate your child about the company, they may not have paid attention. Their passion could very well lie elsewhere.
It is altogether too easy for parents to overestimate their child’s abilities or interest in the company and to do everyone a disservice as a result. Your child may feel the pressure to accept the role even when they doubt their ability to fulfill it or have to give up a career they love to do so. More importantly, if they lack those skills, the business could end up failing, leading to a loss of their inheritance and also likely guilt over what happened to the company on their watch.
Nepotism can damage the company and demotivate staff
People want to believe that they will receive raises and promotions based on their job performance, not based on their relationships.
When there is obvious nepotism occurring in the upper levels of a company, the workers may no longer feel as driven to perform because they assume that their relationships and not their abilities will determine their future opportunities at the company. Workers may start looking for a job elsewhere where they think their abilities will receive proper attention, which can lead to a loss of some of the best talent at the company.
It is possible to give your children an ownership interest in the business you run without giving them direct managerial control. It is also possible to train and prepare your child to take over the company so that their transition into management will not cause problems for the business.
Carefully considering the future of the company could help you make better decisions about succession planning and your personal legacy while you are still in a position to convert those plans into actionable company policies.