Succession planning and generational transition are preoccupying themes for families in business together, and for the family offices that guide them through these critical moments. But what, in your experience, do the family members themselves think is important when it comes to passing on the baton?
“And while families have to make very significant decisions around financials, ownership and governance, it is equally important that they consider the human side of the transition: how the experiences and perceptions of the next generation feed into the process”.
Does that place a greater emphasis on the importance of communication in your engagements with families?
“Next-gen business leaders universally emphasise the importance of constant, open, honest communication – about expectations, ambitions, concerns and legacy. In fact, in one form or another, communication is a key feature of almost every conversation with them. This is especially important for family businesses that successfully reach their third and fourth generation where a dilution of ownership and interests, as well as a potential syndication of decision-making, can cause friction both amongst shareholders and with executives and employees”.
Would you recommend early exposure to the family business/office to ease the transition of wealth, and or a change in management?
“Absolutely, whether they attended meetings as a spectator or served as a personal assistant or translator to the business leader, Next-gen leaders say that early exposure to the realities of leading the family enterprise helped them to make decisions about their future involvement. Some larger, multi-generational family businesses have education programs and even summer camps for the children. These can help the next generation to understand the heritage of the business, gain insights into its activities and build their own networks across the extended family. “
When families are considering succession, how do families choose the most effective successor?
“Ownership and leadership need to be conscious choices, not least because they will demand so much from the individuals. So families, and leaders in particular, need to be aware of and honest about what younger family members want and what they are good at. It is hard to quantify happiness and fulfilment, however, these emotive elements are just as important as business skills in successfully transitioning from one generation to the next.
“Allied to this is awareness of and sensitivity to the intense competition and rivalry that exists within families, especially between siblings. On the whole, we’ve found that, in high-performing families, competition and jockeying for position may begin in childhood and families need to understand how this all feeds into the dynamics of succession and future leadership.
“Next-gen leaders also talk about the importance of proving themselves worthy of succession and of demonstrating that they both deserve their place and are competent to take on the role. For some this is the biggest challenge as they come up through the business because they feel they are always seen as the ‘boss’s son or daughter’ and that their authority is always compromised by this perception.”
“Next-gen leaders say that gaining training and experience outside the family business has been enormously beneficial. They believe external experience:
- enables them to learn and make mistakes away from family scrutiny and/or consequence;
- builds their confidence and ability to think independently;
- helps them to establish credibility in the family business; and
- broadens their skill set and perspective
“In particular, some leaders emphasise that this external role should either focus on or take some responsibility for sales, which, they say, as well as teaching negotiation and empathy skills, is a powerful way of fostering humility and taking individuals past any sense of entitlement they may feel.
“Outside the family enterprise, Next-gen leaders tell us they have benefited from setting up their own business or taking on a specific project within the family enterprise, for example, opening a new office, a plant or launching a new line. Again, they cite the importance of having the latitude to make mistakes and fail as an engine for personal and professional growth, as well as the sense of ownership and purpose their own venture provides, plus exposure to the many moving parts of an operating business”.
In your engagement with next generational leaders what are some of the main oversights made when it comes to generational transition?
“But Next-gen leaders also emphasise that the retiring generation also need to be prepared, particularly where they are the founders of the business. Ceding control over an entity that they have built from scratch, nurtured through challenges and brought to scale is not easy and many ‘patriarchs’ and ‘matriarchs’ have trouble letting go. But neither is it easy to assume control and find that your every decision is being critiqued by the founder. Often, founders are critical of their successors’ mistakes and expect them to be perfect, forgetting that, in building the business, they themselves made many mistakes. Interestingly, Next-gen leaders say that being given the space to fail and make mistakes has been crucial to their growing into the role and becoming successful.
“At the same time, Next-gen leaders tell us that taking over a successful business requires a very different mind and skillset from building a business from scratch. So, it’s important for families to approach succession with their eyes open, to try to understand the process from the perspective of the other generation”.
Christina Staples Family Office Community Leader, Deloitte
Christina is a Director within Deloitte in the UK and leads the firm’s Family Office Community - a distinctive peer network designed exclusively for senior executives of Single Family Offices. The programme offers members access to topic-specific events on the key challenges impacting family offices and their families; a closed and confidential forum to discuss family office issues; updates and insights on relevant market trends; and access to Deloitte subject matter experts. Christina has over 15 years’ experience in professional services supporting family business leaders, family offices, and their advisors around the world. She has a track-record in creating differentiated programmes and experiences for clients across a range of markets and sectors. Prior to Deloitte, Christina held roles supporting private clients with Aon and KPMG.
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