Study Highlights the Critical Need for Institutionalization in Family Businesses
According to a study by CIFEM|BBVA of IPADE Business School, six out of ten family businesses are at risk of disappearing due to the lack of institutionalization processes. The report, titled “Progress Level of Family Businesses to Achieve Continuity and Harmony,” emphasizes that for the survival of companies, it is essential to avoid relying on a single or few individuals and instead detail the participation of partners and family members along with their respective rights.
Importance of Establishing Boards and Assemblies
Only 5% of family businesses have established either a shareholders’ assembly or a board of directors, as highlighted by Ricardo Aparicio Castillo, director of CIFEM|BBVA. The study reveals that 66% of the participating companies are in imminent danger, requiring intense work on governance processes and functional board formation.
Professionalization Enhances Competitiveness
Ricardo Aparicio Castillo further explains that professionalization, including corporate governance, a board of directors, and succession processes, makes family businesses more competitive against large corporations. However, only 4% of these businesses have optimal conditions for survival, indicating that the majority accumulate poor practices that could lead to their disintegration.
Lack of Succession Processes
Another significant issue faced by family businesses is the absence of succession processes, with 53% at risk due to the lack of policies for leadership transition. This problem has worsened over the years, with 48% lacking succession processes in 2020, increasing to 51% in 2021, and further rising to 57% in 2023.
Generational Challenges
Alfonso Bolio, professor and dean of the Human Factor and Family Business areas at IPADE, points out that the transition from first to second generation is where most challenges occur. Of six first-generation companies, only two transition to the second generation, and just one reaches the third generation.
Key Aspects of Succession
The study identifies two crucial aspects in succession: knowing the future plans of the current CEO and having a prepared successor. However, only 15% of directors are considering leaving their positions without a set timeline, and just 20% are genuinely preparing a candidate, with only 5% having established a succession process.
Moreover, there is confusion between the roles of owner and director, with 56% of family businesses merging these positions, complicating professional decision-making. Additionally, 58% lack clear policies for employee onboarding, evaluation, and departure, particularly for family members.
Conflicts in Family Businesses
Despite strong financial performance, with 78% reporting sales growth and 74% in asset growth, family conflicts can jeopardize businesses. Alfonso Bolio stresses the importance of formalizing and professionalizing a company’s governing bodies for successful generational transitions, as 59% of family businesses have unresolved conflicts that avoid or postpone addressing internal disputes, affecting business operations.
34% of businesses postpone problem resolution, emphasizing the need for families to learn conflict resolution and address disagreements promptly.
Unresolved Conflicts
Bolio warns that unresolved conflicts, if not addressed immediately, can accumulate and recur over time, impacting the business negatively.
