âWhen are you planning to retire?â That might not be a question you can easily drop into conversation around the dinner table of a business-owning family. Yet it is one of the 35 most pressing questions weighing on the minds of the next generation, or Next Gens, according to our interviews with more than 100 enterprising families around the world.
As researchers into family businesses, we recognized that there was a lot of support and advice for the senior generation but less awareness about the needs and concerns of Next Gens. Yet, within the next decade, 60% of enterprises will see a change of ownership. And two out of three family offices will be passed on by 2033. This means Next Gens are set to inherit about $2,000bn in financial wealth, marking one of the largest transfers of wealth in human history.
Hailing from business-owning families ourselves, we are aware of how misunderstandings can seep into relationships between senior and younger members, in turn complicating â or even jeopardizing â the transition from one generation to the next.
To try and give families the means to start communicating, we asked Next Gens for their views and concerns regarding their involvement in their familyâs business.
Over several years, we interviewed senior and next generation members of more than 100 family businesses around the world, and then asked a further 70 Next Gen members for feedback. The result was our book Enabling Next Generation Legacies: 35 Questions that Next Generation Members in Enterprising Families Ask.
Many Next Gens fret about whether they may be good enough to take over the helm or worry if their talents will match the achievements of the senior generation
The book is designed to start conversations on a range of topics that might otherwise remain unaddressed. Questions include: Who is considered part of a family? How to exit the business gracefully? And when should we set up a family office to organize wealth? We categorized the questions into four areas â family, ownership, business, and wealth â with responses from leading academics and enterprising families to each.
What is clear is that there is no one-size-fits-all answer. For example, whether you can leave the family firm and strike out on your own will depend on culture as well as family dynamics. While it might be frowned upon to turn your back on a family business in India, in the US the next generation might be encouraged to be entrepreneurial and set up their own ventures.
There are, however, certain lessons that can help ensure a smoother transition from one generation to the next and enable families to move from division to understanding.
There is almost no family business that fails solely on account of the business itself. Anyone who has seen HBOâs award-winning TV show Succession will recognize that at the heart of the fighting over who gets to control the entertainment and media conglomerate is a family of lost souls, scrambling for acknowledgment and affection.
Families need to spend as much time strengthening their bonds as they do building their business. The underlying dynamics within a family â such as sibling rivalry â remain consistent across geography and time. Sibling rivalry arises when family members feel they werenât given an equal share of love and attention. When it comes to handling a transition, you canât right a wrong that started 30 years ago.
The families that have the least difficulty in transitioning wealth and responsibility across generations are those that have woven the enterprise into the fabric and soul of the family. Take the case of Arial Ben Zaken, chair of Israeli family-owned Domaine du Castel winery, who, unlike many other Next Gens, does not feel guilty about inheriting wealth. The reason? His parents, who founded a restaurant after emigrating to Israel, put the business at the heart of the family. Ben Zaken would head there after school and spend hours in the kitchen inventing recipes. By instilling a responsibility to contribute to the shared livelihood, Ben Zakenâs parents created a solid legacy to pass onto the next generation.
In contrast, we also spoke to several prominent families who had issues engaging the next generation because the children had grown up unaware of the fatherâs work, the products he made, and the impact the business had on the community. If you want to involve the Next Gens in the enterpriseâs future, itâs important to start socializing them into assuming roles in the company by making it part of the familyâs shared memory.
While many family business owners might be great at running a company, this doesnât mean that they will be good at passing it on, especially since a succession event is often done once in a lifetime with no prior experience.
Many members of the senior generation may have had little choice over whether they took over the family firm and will have been thrown into the deep end with a âsink or swimâ attitude. To set the Next Gens up for success, it is helpful to prepare, and even train them for the task. For example, surveys reveal that more than half of designated heirs lack the necessary education and experience to understand the work of a family office. This does not bode well for the future of families and their wealth.
The questions in the book reveal that many Next Gens would like to know more about the enterprise as they seek to figure out their path and role in its future. The prevailing view for past generations of family business leaders, however, was that one scion should run the business while the rest of the family should be kept uninformed. Nowadays, even those family members who havenât been crowned successors will want to have their voice heard. Even if they arenât involved in the day-to-day business, they can still play a role on the board, in the family council, the family foundation, or perhaps by working in the family office. Whether in the boardroom, at the family meeting, or on the shop floor, it is important that family members feel that their opinion is heard.
Arial Ben Zaken with his father Eli, who founded the business after many years running a restaurantWe believe that asking questions is a good starting point. But it is important to frame the questions well, otherwise you wonât come up with a good answer. Next Gens should also ask these questions in a respectful way so that they donât push away their families. This involves approaching with empathy and compassion the difficulties that the senior generation may have in letting go. For the younger generation, it can be hard to understand the grief their parents might feel when contemplating retirement and detaching themselves from a business they have built. Itâs important to be proactive in starting a conversation around succession but, equally, younger family members should realize that these discussions may need to happen slowly and respectfully over a long period of time. A family is like a big container ship. It doesnât change course quickly.
One difference between succession in a publicly listed company and family-owned enterprises is that the age gap between the current leaders and their heirs is likely to be bigger. Those preparing to take over businesses in the next decade have come of age during a volatile, complex, and ambiguous world. They are technologically savvy, at home globally, and eager to make an impact through their activities beyond just creating wealth.
Indeed, financial wealth is a poor glue with which to keep families united and happy. A purpose can also help family members identify with their investment and its cause; for example, by building a portfolio of biotech investments to treat cancer. Family members are also more likely to feel inspired rather than burdened by their familyâs wealth.
At the same time, it is important not to neglect non-financial wealth such as networks (social capital), knowledge and competencies (human capital), and the intellect, education credentials, and communication style (cultural capital) of the Next Gens.
These will determine whether a family is able to deal with its own challenges and make a difference to their enterprises and society. Unfortunately, too much attention is paid to the transfer of financial wealth â stocks, bonds, private equity, and real estate â at the expense of nurturing non-financial wealth.
Next Gens who have had the chance to pursue their own vocation outside of the firm and become self-sufficient may also be better equipped to use their familyâs wealth to make a difference, whether that be by engaging in philanthropy, impact investing, or setting up their own venture.
Next Gens are often stigmatized as a burden. But our research shows that many of them are aware of the responsibility that faces them and have pressing questions about how to navigate the next stage of their familyâs enterprise. Family businesses have a boardroom and a kitchen table. Itâs important that critical conversations happen around both.
Based in Colombia, Carvajal SA is one of the worldâs largest manufacturers of paper notebooks. For more than 30 years, all family members have been given free or heavily subsidized access to...
Family businesses seem to be made for the movies and television. They have everything: success, power and riches, as well as dysfunction and drama. Most are a caricature of reality, but nonetheless...
Emotions are not often talked about in most organizations and yet they are a significant factor in every decision made. Neuroscience and behavioral economics have clearly demonstrated that we are emotional beings...
Family businesses have been traditionally hard-wired for longevity and stewardship, seeking to preserve and grow wealth across generations. This patient approach offers transferable lessons for all organizations navigating uncertain times. But family...
You have 4 of 5 articles left to read.