PwC’s Global NextGen Survey was released on 29 March 2022, surveying over 1,000 family businesses and family enterprises globally.
A key theme highlighted by the survey is that while growth is a top priority of both the current generation and NextGen, there is a stark contrast in the growth priorities of each generation. The NextGen rank higher the importance of innovation, R&D, reduction in environmental impact and focus on social responsibility and sustainability, whereas the current generation rank these much lower. Assuming these areas are the biggest opportunity for growth, the NextGen have a crucial role in driving and delivering on these priorities through leadership of the family enterprise.
But here’s the dilemma - one of the key challenges for the NextGen is the ability to lead given the reluctance of the current generation to ‘let go’. Of those surveyed, 57% say the hesitance of the current generation to retire is a problem and 45% find it difficult to prove themselves as a new leader or board member.
Over the past 2 years, this challenge has become even more problematic:
- In 2019, 48% of the NextGen were given significant internal operations to lead - now it is 28%
- In 2019, 36% of the NextGen were used as a sounding board and now it is 32%
There has been a marked decline in the willingness of the current generation to let go. Based on my experience working with families this could be caused by a combination of the Covid-19 pandemic and the feeling that a ‘wise older head’ is needed to lead through adversity. I’ve also seen many founders express that ‘work’ ultimately provides a sense of purpose and sometimes identity for people, so “why should I hang up the boots now when I still have lots to offer?”
It's a challenge I see regularly when working with families to help them develop an effective succession plan - and it’s one that could be easily avoided with better communication and planning at the outset.
The transfer of control can cause tension between the current and next generation, as well as amongst siblings. But properly defined and planned it presents a tremendous opportunity to work together and build a foundation for generations to come.
Succession Planning is essentially “the transition of management and ownership over time”. Not that scientific - but it doesn’t have to be. Focus on the words “transition” and “over time” - and also realise “management” and “ownership” can be handled separately and at different times. Families that execute an effective “succession plan” realise that succession is a process not an event. Done well, it can often take 5,10, or 15 years - and that isn’t such a bad thing. Clearly the wise older head has a lot of value to add, as does the NextGen and by transitioning this experience, over time, in stages, you can get the best of both worlds.
In addition to the NextGen focus on digital, technology and ESG as ways to drive growth, looking at a problem differently and having diversity of thought around the table is a competitive advantage in any enterprise.
So what are families to do?
Carving out a role for both generations in a way that brings opportunities to the family enterprise should be the focus - as well as agreeing on up front what everyone means by “succession planning”, with a focus on maintaining family harmony, is key to ensuring you have a “successful” succession plan.
So what can I do?
- Define the purpose of the family wealth - is it to provide a lifestyle, leave a legacy, to make a difference in the world, to ‘give back’ - or a combination of many factors?
- Identify family values - work through the values of each family member in a structured way. What are the values that you have in common and where are the differences? Use these to your advantage.
- Communicate - people are human! Each person will have a different communication style and this can be a source of conflict as misunderstandings arise. Understanding each others’ style and adjusting your own style in particular situations will help with messages being heard and understood. Get an external facilitator involved who can work with different styles.
- Formulate a plan - a strategy to work together to achieve the goals and purpose of the family, as well as giving meaningful roles to each family member.
- Structure and Governance - family charters that summarise purpose, values and how the family has agreed to operate can be an important tool in effective succession planning - but there’s limited value in having a shiny document without buy-in from all family members who are agreeing to ‘live’ the charter. Too often “charters” or “constitutions” are sold as a solution - but without clarity and agreement on purpose, values and enhanced communication they can do more harm than good.
PwC’s Glen Frost, summarises some more actions you can take to increase your chances of a successful succession here.
Family business owners invest a lot of time and effort in the “business” part of “family business”. I think it’s time they spent as much, if not more time on the “family” part of “family business” - and if you’d like to discuss your succession journey in more detail, please contact me.
