Succession in family businesses: Here’s the perfect solution if the next generation doesn’t want to take over

ILLUSTRATION BY RUTH MACAPAGAL

I was recently sitting in the boardroom with the family members of a very wealthy European eighth-generation family business that has been dominating whole industries in several countries for decades.

When we discussed succession, they mentioned that they had realized early on that the gene pool from their family could not possibly cover all important high-level positions in the group, at least not without force-fitting family members into positions they were not suited for! As a result, they always get top external talent to complement the family in the top leadership positions.

But what happens if the next generation does not want to take over? Because over 83 percent of our clients globally and in the region are family businesses, clients ask us this question a lot.

Understand the ‘why’

The head of an Asian fourth generation family business approached us recently to ask if we can help them because the next generation does not want to step up. He was both shocked and puzzled by that. “Why?,” he asked me. “Why do they not want to join the business that has been providing for our family for so many decades? We worked so hard to get this to the level where we are now.”

A good solution starts with an understanding of the “why”.

In our global practice of advising family businesses around the world and creating customized succession plans, there are usually several reasons why the next generation may not want to take over.

They do not feel as strong a sense of responsibility to carry the legacy of the family forward.

• They are simply not interested in this particular type of business.
• Complacency: They are too “spoiled,” for lack of a better word, and comfortable, and do not want to follow in the footsteps of their hardworking parents or grandparents.
• Too high expectations: The next generation believes that it is too much of a burden to carry the legacy forward.
• Only a chore: The next generation views it as not being that much “fun” as they see their family always working hard, and this does not appeal to them.
• They want to explore outside of the current business first and learn for themselves.
• They may have a lack of passion for the particular business.
• The expectation of failure: They have a belief they may fail.

Levy the burden of succession

I will share an example of how it can be too much of a burden to carry the legacy forward.

One of our Filipino clients who is both a family member and also the chair of one of the family conglomerate’s most important businesses shared a story with me about how he had taken over many years ago.

“Another family member had been in charge and now it was my turn. It was brutal and ugly. He was out to get me at every turn. He was constantly looking for mistakes as he wanted to take my place again, and the pressure from the family was enormous.”

It was not long before he made his first big mistake, which then scarred him for life. As a negative consequence, he developed what we call “paralysis because of over-analysis” coupled with a strong tendency to micromanage. This cost the business many profitable opportunities because he could not make fast decisions and would not delegate enough.

Fortunately, after several hours of personal coaching, he managed to change his behavior and became a highly effective executive. The business pivoted successfully before COVID-19 and the last years were some of their best ever.

How can you avoid this from the start? Create a culture where mistakes are tolerated, even encouraged, because it means that someone had taken action. Give the next generation the clear assurance that it’s okay to make mistakes.

Pass on the wisdom and experience in a systemized manner

Make sure that the current generation that leads the business downloads the wisdom, experience and manner of working learned over the years. As I explained in another column, this is best done by writing down the principles for decision-making and examples of successes and failures, and the learnings behind them.

Share some of the failures and insights on how the failures can be overcome.

For example, Steve Jobs applied this principle by creating Apple University to plan his succession by teaching others the way he thinks.

How do we fix it?

If you are in a situation where the next generation does not want to take over, the obvious question is: How do we fix it? What could a concrete plan look like?

Succession planning is about making the right decisions. It is a complex process.

Every family is unique. Every business is unique. So, of course, every solution must be unique for it to work. Successful succession requires complex planning.

The earlier you start to plan and prepare, the better. Different scenarios and contingency plans need to be developed so you can easily switch from one plan to the next if circumstances change.

In all scenarios, a clear picture of reality is first needed before determining the path forward.

In every succession plan, there must be a deep investigation to establish if a family member is a good fit. Even if at first someone may not seem a good fit, in our regional and global experience, we have found that once you peel off the layers underneath, there can still be the potential for a great executive. Start with the end in mind

Remember: Great executives are made, not born.

What is key: Have an external expert carry out these interviews and assessments with the next generation. These should never be done by someone within the family or by an executive within the family business conglomerate because all of these will be biased.

Otherwise, there is a strong tendency to “bend reality” to suit whatever outcome the person has in mind.

If you are a business owner or head of a family business conglomerate, consider the ideal outcome you want to achieve—if nothing is impossible.

Different scenarios:

• The family feels that on review of the current situation and their expectations, the next generation is not ready at this stage.
• The family believes that the children might not be confident enough and want to try something on their own before they step into the business.
• The family is also unsure if the children can take the business forward.

It is almost always better for children to first work for some time outside of the family business. Why? Because they will not have a sense of entitlement and things will not be given to them easily, either by other family members or colleagues, because they are family. It will also help them to develop their sense of responsibility, ownership and accountability.

Next action steps

1. Understand the “why.”

2. Levy the burden of succession: Give the next generation the clear assurance that it’s okay to make mistakes.

3. Pass on the wisdom and experience in a systemized manner.

4. Start with the end in mind. INQ

Tom Oliver, a “global management guru” (Bloomberg), is the chair of The Tom Oliver Group, the trusted advisor and counselor to many of the world’s most influential family businesses, medium-sized enterprises, market leaders and global conglomerates. For more information and inquiries: www.TomOliverGroup.com or email [email protected].