I am fortunate to work with and advise many business families. I am always in awe of the amazing enterprises they run and continue to build. Over the years, I have had many conversations with both the founders and future generations about their businesses.
One common theme keeps coming up time and time again; future generation family business members often ask, “How do I get my parents to retire?” At the same time, their parents ask, “How do I get my kids to step up and take more of a vested interest in the business?”
Recently we undertook a study to better understand the opportunities and challenges facing Canadian business families and what it takes to build a successful family business today and prepare for the future. One key finding that stuck with me is that almost half of Canada’s family businesses expect to see an intergenerational transfer of management and/or ownership within the next five years. Yet, over 80 per cent have no formal plans in place to manage the family dynamics of the business, and help prepare future generations to continue the family legacy. We found that many future generation family members are struggling to understand where they fit in the business and how the transition will unfold.
Transition of the business from one generation to the next is an area where future business needs and family dynamics frequently conflict. Some family members may assume the succession will unfold in due course; others may be afraid hurt feelings will result if they speak up. In addition to talking to their advisers, it’s clear that family members need to talk to each other—about the future of the business, future successors, or future roles in the business.
Challenges Facing Future Generations
Respondents reported that the biggest obstacles future generations need to overcome to succeed in the family business are gaining the right experience, skills and business knowledge while overcoming entitlement issues. They also voiced that they need to be able to have the vision and leadership capabilities to innovate new ideas to help the business stay competitive and continue to grow. The future generation will ultimately decide whether the family business legacy continues. They need to clearly understand what the family business can do for them, what the business expects from them and be allowed to envision the future direction of the business.
How Current Generations Can Help
Providing mentoring and training topped the list of ways that respondents felt current generations can help future generations, as did more open communication. Future generation family business members clearly want more mentoring from senior family members. Running the particular family business “cannot be learned in school”. There is a sense that senior family members possess essential knowledge that they need to pass down if the next generation is to succeed.
Many respondents also emphasized the importance of teaching business values and ethics. They believe future generation members can be well-served by putting them in challenging roles and then holding them accountable for results. These respondents believe that good business habits should not only be taught; future generations should be given opportunities to develop them in practice.
Some felt that current generations can help the future generation by focusing on attracting good managers to work in the business: passionate workers with industry knowledge who can help the business adapt and stay competitive. Others believe in the importance of developing a solid, long-term business plan to put the business on solid footing during the transition and define how the business should be carried on for many years afterward.
Bottom line - family businesses need to find ways to balance the needs of the business to grow and prosper against the needs and expectations of family members. Business owners who plan to hand the business over to future generation family members may benefit from the following tactics:
- Having the future generation develop family business rules or policies allows them to learn how to communicate with each other without their parents or elders in the room and teaches them how to listen and how to make decisions.
- Family business rules and policies must include a formal dispute resolution process that is supported by the family.
- As soon as potential successors are identified, they should be assigned a mentor, not only to help groom the potential successors but also to give the mentors direct insight into the feelings and challenges of the future generation.
It’s pretty evident from the future generation business families who responded to our survey that while these family members hunger for clarity about their future roles, they are eager to carry the business forward with their own innovations, ensuring the family business continues to flourish for generations to come. They also realize that they need advice, mentoring, and support from current and or senior business family members to make this happen. I’ve addressed only a small portion of our survey results, if you are interested in reading the full report, Family Ties – Canadian Business in the Family Way visit kpmg.ca/centre-for-family-business.