Why aren’t more businesses being passed from generation to generation and vice versa, why are younger generations not more interested in taking meaningful responsibility in their family businesses? Younger family members may be totally unprepared to take on leadership roles when the company needs them, or may not want to shoulder the burden of responsibility – either for running the company or for “reporting” to other family shareholders. There may be several challenging family conditions, often in combination. And yet, with a little forethought and open-mindedness, so many of these obstacles could be remedied. This article covers several approaches that can familiarize younger family members with the ins and outs of today’s business and prepare them to take the reins in the future.
Statistics on family businesses show that although a third of family businesses have been run by the second generation over the past five years, that number has fallen to just 19%. According to a 2021 PWC Family Business Survey in the US, “Only one-third have a solid, documented and communicated succession plan…[and] globally, only 24% of family businesses focus on next-generation ownership.”
Why aren’t more businesses being passed from generation to generation and vice versa, why are younger generations not more interested in taking meaningful responsibility in their family businesses? Younger family members may be totally unprepared to take on leadership roles when the company needs them, or may not want to shoulder the burden of responsibility – either for running the company or for “reporting” to other family shareholders. There may be several challenging family conditions, often in combination.
The older generation avoids or does not know how to think about succession and transition; They keep their fingers crossed and go about their daily chores hoping that if they run the business, someone will be ready and willing to run it at the right time. The children, in turn, may believe that Mom or Grandpa will carry on forever, and often the older ones want them to believe just that. Or a child could be referred to as “The One” and the other children see no reason to interfere. The assumption that someone else will always take care of the business can lead to great stress when it turns out not to be true. At one of my clients’ businesses, the sister who was supposed to take over the business suffered a terrible accident and the other sister had to catch up to learn everything she had never experienced before.
The parental generation can be so strong, steadfast, or controlling that children, even if they have certain functional roles, are not given the opportunity to participate in decision-making or leadership. You may not learn the crucial skills of management, negotiation, or planning. Given their scant notoriety, they may believe that running the company should be easy and straightforward. Or worse, they assume they know what to do just because they grew up in the industry, or that everyone takes them seriously because “I’m a Wellington and my name is on the door.”
The family business can be a turn off. Too often, conversations at home consist of one complaint or emergency after another. Children can pick up the idea that working in the family business is difficult, unpleasant, and never-ending. Nobody wants to embark on a pursuit that feels like a never-ending drudgery, filled with difficult conversations and agonizing decisions. “Listen [my parents] Dinner conversations sounded so frustrating, annoying and scary. I didn’t want that for me,” said one daughter who wouldn’t even try to work in her family business.
And yet, with a little forethought and open-mindedness, so many of these obstacles could be remedied. Here are some approaches that can familiarize younger family members with the ins and outs of today’s business and prepare them to take the reins in the future:
This is how you prepare the next generation for leadership in the company
Create a shadowing program.
Even small children can be exposed to the excitement of the business environment. You can start with something as limited as a Bring Your Children to Work day to kickstart the tradition of involving all employees without overemphasizing the owners’ children. Pair it with a picnic to encourage owners’ children and grandchildren to become familiar with meeting employees and their families. Over time, teenagers may express interest in specific roles or departments, and these endeavors can develop into formal internship and apprenticeship programs where young people learn about the business and the career opportunities available. Most children love the idea of helping their parents, so seeing where their parents work and seeing the company as an exciting place to belong is both stimulating and important for children.
Create progressive development experiences.
Moving family members through the organization gives them the opportunity to learn about all aspects of the business. As they gain expertise in different areas, they may also have multiple opportunities to lead different work groups. In this way, they learn the mechanics of the business while gaining experience in general management. Some family-run organizations require children to work elsewhere to develop an independent business perspective. One of my clients encourages family members to get involved in the work of industry associations to ensure the kids have other mentors, nuanced industry perspectives, and extensive personal networks.
Provide context for business goals and operations.
Adapt explanations of the importance and value of building the business, financing it, and how it works to each generation’s age and acumen. The dinner conversation can begin with the company’s goods and services and include forward-looking conversations about the company’s mission and what it means to be responsible for the livelihoods of employees and, by extension, other people’s families. For global companies, these conversations are an opportunity to talk about life around the world and how business works differently but on the same principles. Be sure to share the company’s history of successes and crises, how the company survived both, and the wisdom gleaned from those experiences. Explain how to think about risk and risk reduction in an age-appropriate way and explain the trade-offs between growth and stability.
Insist on integrity.
Every family has dysfunctions, and individual family members can develop bad habits. If a child falsifies the truth at home, they may do the same in the shop. If a child is always beating up their sibling during play in apparent rivalry, they are likely to bring that competition into the bargain. It is important that parents do not ignore and address these “childish” tendencies early on, as these negative tendencies are damaging to the business and should not be tolerated, even – or especially – in loved ones.
Make a plan for the future.
Know your long-term intentions for the company so you can plan appropriate career development for the next generation. If your goal is to grow the business to sell rather than build a financial engine that will keep the business in the family forever, then, as one of my clients did, teach the kids to learn how they run their own stocks. This allows them to manage their money after the sale and expose them to functional roles that equip them to work elsewhere. This approach, which emphasizes estate planning, can ensure a comfortable lifestyle for several generations. Parental foresight in this case can prevent the common problem of the owner’s children feeling helpless after a sale because they cannot support themselves financially and are not qualified to work elsewhere.
Educate the whole family.
Not every child decides to work in the company. Yet all family members who become shareholders and whose lives may be impacted by the company will benefit from understanding how the company fits into their present and future lives. A family council can be an effective place to keep the family connected to both the company and each other. The family council, often with the support of outside experts, becomes a place where the family can discuss its mission and principles of leadership and where different branches of a larger family can get to know each other.
In one of my client’s businesses, the council is run by adult third-generation cousins who are not employed and come from the various branches of the family. Part of the council’s role is to educate fourth generation children and young adults about business in general and the family business in particular, to help them decide how much they want to get involved and how to get involved effectively. Another of my clients hosts family reunions of all trades and generations each summer, which include both fun activities for bonding and business updates and training to ensure continued extended family support. The family council provides a forum for teaching company structures, policies, and finances that all family members should understand in the same way. It also creates a repository for family members’ socio-political views to be passed back to management and the Board of Directors.
Family business leaders should value their children’s abilities, talents and aspirations at all stages and give them as many opportunities as possible to learn about today’s business and ensure its successful future. Using these field-tested approaches will help. Even understanding that some children may not want to get into the business, it is still possible to build a stronger family bond and support the business for the benefit of all.
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