Succession Secrets: Nurturing the next generation in family businesses

ILLUSTRATION BY RUTH MACAPAGAL

In the world of commerce, family businesses are an enduring institution, with roots that often stretch back generations. These enterprises are the lifeblood of many economies, but the transition from one generation to the next can present challenges. Let’s explore the steps family businesses can take to ensure the next generation is prepared to take the reins and continue the tradition of success.

How to get rid of the sense of entitlement; promote performance and productivity

With many dollar billionaires in my personal Rolodex and in my interaction with many of the world’s wealthiest people and families, I have seen that a great name and great wealth can be both a blessing and a curse.

The 45-year-old daughter of a prominent billionaire family in Germany, with a combined net worth of $6 billion, whom I have known for 15 years, walks around in Berlin without any bodyguards and in a backpack. That would be unthinkable in many Asian countries. But then again, Germany is itself one of the wealthiest countries in the world and people are less impressed by wealth than they are in many other parts of the globe.

The poorer the country you grew up in, the more you will naturally have a sense of entitlement if you are the second generation onwards because of how people treat you, react to you, look up to you and report to you. It cannot be avoided.

This will mess up your judgment of whom to trust. It will also mess up your view of reality. You will not be able to see things clearly because other people around you will sugarcoat the facts or not deliver bad news at all. But you need to see reality as clearly as you can to make the best strategic decisions as a business leader.

The ‘Bird Box’ phenomenon of most entrepreneurs

I have seen a room full of highly intelligent executives nod at utter and complete nonsense a business owner was saying because no one wanted to break the truth to him that this made no sense.

The sugarcoating problem that prevails in many Asian countries makes this worse. So many business owners and their next generation sit in an ivory tower without realizing it and only have a very limited idea of what is really going on in their businesses.

They need external expert advisors who do not care about their wealth, who are not from the same country, not impressed by their status and can therefore tell them what is really going on with their businesses and what other people around them really think. This includes an honest assessment of who is really competent in their core circle of executives they surround themselves with and who is not and who is trying to take advantage of them.

I recall the example of a wealthy Asian entrepreneur who was sailing straight into bankruptcy and no one told him. He kept opening new businesses without a proper analysis of the threats and risks and every one of his top executives went along with it for several reasons. First, they did not want to be the bearer of bad news. Second, they did not want to tell him “no”. (The Philippines is also one of the countries in the world where this is a common phenomenon). And lastly, they wanted to go along for the ride because he paid them all handsomely.

Fortunately, my global strategy and management consulting company and I are in the position that we can choose whom to work with. Because of his attitude, this was someone who was not high on our list, so we declined. We still told him the truth of what was actually going on around him so that he could wake up and correct his course.

The lack of a proper feedback mechanism

There is no way any of us can get better if we do not have proper feedback. If people will not tell you when you look good and when you do not, you will not have the feedback mechanism you need to become as smart as you can.

My clients know that I am zero-percent impressed by wealth or status because many of the wealthiest people in the world are on my phone and just a call away. You need people around you whom you can trust and who will tell you the truth.

How to prepare the next generation

Often the sense of entitlement grows stronger with each generation, if no countermeasures are taken. Why? This is obvious. The first generation came from nothing and built it up. They know how much work and dedication it took. They understand the “earning” part. They stay humble. The more the next generations are removed from that, the more they grow up with that sense of entitlement.

What are the negative effects? Persistence is more important than talent. That persistence requires resilience in the face of adversity. First generation founders must have that to rise to the top. The next generations have to have similar experiences to build the same kind of aggressive drive and persistence that will allow them to grow and expand the business so it can survive.

Tomorrow’s economic environments will be unforgiving because change has accelerated so much that it now happens faster than ever before in history.

Step 1: Start with education

Education is the foundation for future leaders. Ensure the next generation has a solid understanding of the business, its operations and the industry it operates in. This education can take the form of formal schooling but it should also include hands-on experience within the business. Internships and roles in various departments can provide invaluable insights and experience.

And have them start outside of their home country where no one knows their name and their family.

Step 2: Foster leadership skills

Leadership isn’t something that can be handed down like a family heirloom; it must be cultivated. Provide opportunities for the next generation to develop and demonstrate their leadership skills. This could involve assigning them challenging projects, giving them responsibility for a team or providing them with leadership training and development opportunities.

Step 3: Encourage innovation

Innovation is the lifeblood of any business. Encourage the next generation to think creatively and bring new ideas to the table. This might involve fostering an entrepreneurial mindset, investing in research and development, or setting aside time for brainstorming and creative thinking.

Step 4: Create a mentorship program

A mentorship program can help bridge the gap between generations in a family business. Experienced family members can offer guidance and share their wisdom with younger members, providing them with a valuable source of advice and support as they navigate the challenges of leadership.

Step 5: Emphasize communication

Open and clear communication is key to managing the complex dynamics of a family business. Regular meetings can help to ensure everyone is on the same page and can provide a forum for discussing concerns, challenges and opportunities.

By taking these steps, family businesses can help to ensure their legacy endures and their futures remain bright. 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].