The Wall Street Journal ran an article about Palo Alto Software, and our family succession strategy. It’s always fun to make it into the main stream press, and I think succession strategies are interesting and often very poorly implemented.
Tim (my Dad) wrote a little bit more about the article and his thoughts on his blog at blog.timberry.com I think that often times family businesses fall apart when it’s time to figure out who takes over from the previous generation. Tim and I have worked hard to make sure that we do this as well as possible, and that the end result is a company that is better off for the change. I feel like we have succeeded, but of course only time will tell!
I am slightly disturbed by a post on Nepotism on the Harvard Business Online. Although it was written more than a month ago it has been featured this morning on NPR. While I agree with many of the sentiments about nepotism I think there is a distinction to be made between Nepotism and family business. A distinction which Gill Corkindale, the author of the post, does not go into at all. Let me present you with some very strong statistics about the importance of family business in the USA, from a Business Week article :
- Some 35% of Fortune 500 companies are family-controlled.
- Family businesses account for 50% of U.S. gross domestic product.
- They generate 60% of the country’s employment and 78% of all new job creation.
We can see that family businesses are extremely important to the US economy, and are part of what makes America what it is today. So how do you reconcile a family business and these negative attitudes towards nepotism? You can not pass a family business from one generation to the next, unless family members work and run the business. Family succession planning is very important to the health of a family business. Good family succession planning means the difference between a healthy business that keeps growing and running from one generation to the next, and a business that burns out and fails, or worse gets sold out of the family (often times for bargain price to be dissolved for assets).
I am a little sensitive about this issue – as I fight against the negative connotations of nepotism in the course of conducting business. I am CEO of Palo Alto Software, a business my father started and still fully owns along with my mother. I am the family member that will take the business though the next generation. Why? Because I am my father’s daughter? Well, yes of course – otherwise it would not be a family business. But I have also worked hard, and earned this position. I went to an Ivy League school, and then spent 7 years working in technology, outside the family business. I then spent 6 years working at Palo Alto Software proving myself to my parents and to the rest of the employees. Then I became CEO. I feel that I have earned the respect of all my employees, and that they all know that I have the skills, talent, and smarts to keep this business running and growing.
I think there are right ways to bring family members into a business, and there are wrong ways to do it as well. But I don’t agree that all nepotism is bad, and that family members should never hire other family members. I think its a strategic dance, and it has to be done for the good of the business, but it can be done well. And when it is done well it means the difference between the life or death of a family business.