Running from the family?

By Henry Hirzel

When it comes to handing over the reins to successors, the odds are stacked against family businesses. Around 70% of families fail to properly pass their business or wealth to the next generation. One of the biggest reasons is that half of families lack a succession plan: a process for identifying and nurturing people to become leaders in the business.

But there are other, more personal, reasons. A paper entitled 'Coming home or breaking free?' by University of St Gallen and Ernst & Young found that only 6.9% of 28,000 students intended to take over their parents' firms one year after completing their studies. Why? It seems family members want the freedom to follow their own career paths. In fact, 40% of the students planned to launch their own businesses.

Taking the initiative
In our advisory work, the older generation often asks us how they can engage younger family members in the business. It's about much more than putting elaborate succession plans and family constitutions in place. Engaging the next generation boils down to good communication and managing people's expectations. The biggest mistake we see is that families fail to plan and, in turn, plan to fail.

The older generations aren't solely to blame. The initiative also needs to come from next-generation family members. For example, we worked with a family where the founder was too busy running the business to discuss family governance. So the younger family members took the initiative and started the process themselves. A couple of years later, the parents saw that the younger generation was getting results. Inspired by their children, they engaged with the process. The succession couldn't have gone better. Today, all five next-generation family members run different divisions across the business.

Creating opportunities beyond the company
There's more to successful succession than focusing on the family business. We find the best results come when families also create opportunities beyond the company. These opportunities for individuals might involve managing the family's wealth, developing social capital through philanthropy or nurturing the family's most important assets: its human capital. But beyond the many practical and personal issues at play within family businesses, we have these words of advice for the next generation: Don't wait to be asked — take action.

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