Preparing the Transition of the Family Business to the Next Generation
Provided by the Business Families Foundation, Content Partner for SME Toolkit
The process of transitioning the family business is first and foremost about managing relationships and expectations among family members.
It also involves those key people such as talented non-family executives who gravitate around the family business system.
This process must, however, always start at the family level, because the family is the nucleus of the system; if the core is weak or weakened, the challenges of successfully transitioning the family business to the next generation will increase.
A simple way to initiate thinking about relationship management and to prepare each member of the family for upcoming options and decisions about the family business and common assets is to develop a roadmap of the journey ahead.
Business Families Foundation has developed the Stepping Stones Process - illustrated below - whereby each step becomes a stage of transition and acknowledgement, before moving on with the next stages in the journey.
This process reminds us that business families are made up of individuals at different stages in their development.
The process shows an individual family member’s path, although it is important to remember that we are talking about relationships: the effect of life cycles and the dance between generations on the relationships between family members, which impact everyone in the system. Although preparing for challenges and entering the system may seem to focus upon a single younger person, the model really emphasizes dynamics amongst the whole group. More importantly, it emphasizes the ways in which elders will renew themselves through novel activities and functions when leaving positions of owner-founder, CEO or head of the family.
1. Preparing for the challenge
Sometimes, despite themselves, family members are getting introduced to the family-owned business very early in their lives. For example, children can be influenced on their views of the family and business when parents focus discussions on the business and particularly when those discussions are tense.
It is essential as part of this awareness process, for the next generation to develop work experiences outside of the family business, so as to expand their horizons and prove themselves elsewhere. It also gives them opportunity to get to know more about who they are and what their skill sets are.
2. Entering the family business system
Preparation for this phase is essential in order for family members to meet the expectations and standards of their future position. This is when the “entitlement vs. meritocracy” dilemma comes to the forefront.
A family member who wants to be a manager needs to have or develop the required competencies for the position in order to earn the respect of his or her employees and peers and to be considered by the system as a future leader.
3. Working together as a business family
When working together daily in the business, it is important to share responsibilities as well as authority. It is helpful for the individuals entering the system to have a coach and a personal development plan that takes into account both personal aspirations and business expectations.
It is also crucial to provide regular performance assessments and constructive feedback to the individuals entering the system, so as to help them adjust their approach or improve weaker areas - be they related to financial literacy, behavior, communication, or other related aspects.
4. Dealing with newcomers
For those already in position in the system, how to go about welcoming newcomers (people from the family and people from the outside integrating into management positions in the family business) is always a dilemma in family-owned businesses; this is often due to the fact that many processes and procedures are tacit rather than clearly written, and that the degree of professionalism in decision-making routines is less developed than in the corporate world.
Therefore, the coaching process of individuals in the system is often as important as the coaching of newcomers. In addition, this is a stage where firming up governance and clarifying how decisions are made in the system becomes essential.
5. Passing the baton
As Philippe de Gaspé Beaubien, co-chair and co-founder of Business Families Foundation would say:
« There are probably as many challenges in learning to take the baton as there are in passing it, and we may not address this challenge often enough. The successor generation taking the baton must learn that now they own not only the shares of the company, but also the issues. They must compose with these issues and learn to work together and share this new power, which is not easy for younger generations. They must learn to find an approach to treat the departing generations in such a way so as to be able to use the talent that they have. This is easier if the successor generation who has taken the baton, can chose their own facilitator or mentor (sometimes from outside the family system), and be guided through the delicate balance of taking on this newfound power while not exercising it too quickly. Many families manage to do this quite well, especially with the help of outside mentors. »
The exhibit below presents the Stepping Stones process in a slightly different way. It emphasizes mutuality and interaction across generations.
During some phases of transition that can go from a few months to several years, different generations may interact at work or in the boardroom, as well as together in family meetings; it is key to empower every individual in the system to take on some leadership roles as well as bring their skills to the group, all the while managing relationships and expectations along the way, so that the system as a whole benefits from the various contributions, creates more value and becomes stronger rather than weaker.
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