Data on family-owned and operated businesses indicate that while up to a third of them transition to second-generation leadership, this rate has declined to 19% in the past five years. A 2021 Family Business Survey by PWC in the U.S. found that only about one-third have a well-defined succession plan, and globally, just 24% are actively involving the next generation.
Why do many businesses fail to pass down to the next generation, and why are younger family members often disinterested in taking on significant roles? Younger members may lack the necessary preparation for leadership or may not want the responsibility of managing or reporting to family shareholders. Various familial challenges can contribute to this situation.
Challenges Faced:
1. Lack of Awareness:
Older generations may avoid or not know how to plan for succession, hoping someone will step up when needed. Younger family members may assume their elders will continue indefinitely or may feel overshadowed by a designated successor. This assumption can lead to stress if the designated successor becomes unable to fulfill their role.
2. Lack of Preparation:
Strong or controlling parental figures may limit children’s involvement in decision-making, hindering their development of essential management skills. Limited exposure may lead children to underestimate the complexities of running a business or overestimate their competence due to family ties.
3. Lack of Interest:
Negative perceptions of the family business, fueled by constant complaints or crises at home, can deter younger members from participating. The prospect of a challenging and endless grind may dissuade them from pursuing a career in the family business.
To address these challenges, proactive measures can be taken to familiarize younger family members with the business and prepare them for leadership roles:
Ways to Prepare the Next Generation:
1. Implement a Shadowing Program:
Introduce children to the business environment through initiatives like “Bring Your Children to Work” days, gradually involving them in different roles and departments. This can evolve into formal internship programs, fostering a sense of belonging and interest in the business.
2. Provide Progressive Developmental Experiences:
Allow family members to rotate through various roles within the organization to gain comprehensive understanding and management experience. Encourage participation in industry associations to broaden perspectives and networks.
3. Offer Context for Business Operations:
Tailor explanations about the business’s goals and operations to each generation’s level of understanding. Discuss the company’s mission, its impact on employees’ livelihoods, and lessons from past successes and crises, fostering a sense of responsibility and long-term thinking.
4. Emphasise Integrity:
Address negative behaviours early to prevent them from impacting the business. Instil values of honesty and collaboration to maintain a healthy work environment.
5. Develop a Long-Term Plan:
Define the business’s future goals and involve the next generation in career planning accordingly. Consider estate planning to ensure financial security post-sale and provide opportunities for children to gain experience outside the family business.
6. Educate the Entire Family:
Ensure all family members, whether they choose to work in the business or not, understand its significance and governance principles. Establish a Family Council to facilitate communication and education across generations and branches of the family.
By actively involving and educating younger family members, businesses can build a stronger foundation for future leadership and ensure continuity across generations.
