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How to win the generation game and avoid a succession of problems

Family business

How to win the generation game and avoid a succession of problems

Published 9 February 2023 in Family business • 7 min read

Ensuring a smooth transition of a family enterprise starts with answering the questions of the next in line, write Peter Jaskiewicz and Sabine B Rau

“When are you planning to retire?” 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 – or even jeopardizing – 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 family’s 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 – family, ownership, business, and wealth – 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.

Family dynamics will drive the fate of the business

There is almost no family business that fails solely on account of the business itself. Anyone who has seen HBO’s 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 – such as sibling rivalry – remain consistent across geography and time. Sibling rivalry arises when family members feel they weren’t given an equal share of love and attention. When it comes to handling a transition, you can’t 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 Zaken’s 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 father’s work, the products he made, and the impact the business had on the community. If you want to involve the Next Gens in the enterprise’s future, it’s important to start socializing them into assuming roles in the company by making it part of the family’s shared memory.

Soft skills play a role in smoothing the succession

While many family business owners might be great at running a company, this doesn’t 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 “sink or swim” 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 haven’t been crowned successors will want to have their voice heard. Even if they aren’t 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 restaurant

We believe that asking questions is a good starting point. But it is important to frame the questions well, otherwise you won’t come up with a good answer. Next Gens should also ask these questions in a respectful way so that they don’t 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. It’s 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 doesn’t change course quickly.

Wealth should be viewed as agency, not an end in itself

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 family’s 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 – stocks, bonds, private equity, and real estate – 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 family’s wealth to make a difference, whether that be by engaging in philanthropy, impact investing, or setting up their own venture.

Start the conversation around the kitchen table

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 family’s enterprise. Family businesses have a boardroom and a kitchen table. It’s important that critical conversations happen around both.

Authors

Sabine Rau

Moderating succession processes and co-creating family protocols in Germany

Sabine Rau is well known for moderating succession processes and co-creating family protocols in Germany and beyond. She holds visiting professorships at the Telfer School of Management (University of Ottawa) and at the European School of Management and Technology (ESMT) in Berlin and teaches at the Université de Luxembourg.

Peter Jaskiewcz

Peter Jaskiewicz

Full Professor of family business at the Telfer School of Management in Ottawa

Peter Jaskiewicz is a full professor of family business at the Telfer School of Management in Ottawa, where he holds a University Research Chair and is the Academic Director of the Family Enterprise Legacy Institute. In his research and practice, he focuses on preparing the next generation of enterprising families for success.

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