The transition between two generations is a challenging time for a family business, family stake or shareholding. Yet, studies tell us that 43 per cent of family firms do not have a succession plan in place. Only 12 per cent of these companies make it to the third generation and this statistic drops dramatically to only 4 per cent when reaching the fourth generation.
The world over, family firms add immense wealth to societies and economies. They benefit from the long service tenures of an engaged staff and an increased brand loyalty from consumers who support and trust family enterprises. Not surprisingly, 48 per cent of today’s contemporary entrepreneurs began their careers in their own family’s firm.
So how can the entrepreneurial talent which emerges from within the family business be nurtured and retained? The key lies at the point of identification, and how you plan for the transition ahead.
When is the right time to start with talent transition talks and timetables?
In time gone by, I would often see family leaders announcing that they were “grooming their successor”. It was often a closed door, highly secretive time with the successor announced in the absence of having any personal involvement or contribution to the process, the result being a fait accompli based on lineage rather than leadership suitability.
But with the very real risk of the recognised and disturbing symptom of the heir’s underperformance becoming reality, strategic and tactical talent planning must be applied earlier to enable the transition to be successful. A solid platform must be built to sustain the right legacy of leadership, while also allowing for acceleration of the business and the protection of its prosperity and longevity for the next generation.
Historically, forward planning has started around three to five years before the expected retirement, exit or winding down of the incumbent family business leader. It’s not enough time. I recommend creating a 10-year business and talent vision plan before the departure of current leadership, with a clear three- to five-year window for physical transition to take place once the transitioning talent has been identified.
The plan must contain clear objectives, agreed timelines and transparent measurement metrics on the delivery of results. Identifying the structure of the next generation is key for the actual handover to succeed. I initially assess the next generation on my “4 D” formula. I want to see evidence of their drive and determination, along with their ability to visualise and verbalise their business direction — and examples of the decisions they’ve made which will support their intended future.
How do you prepare next generation family talent? As in any talent or succession planning you must map the role requirements first. Two things must be considered which can often be a real challenge for incumbent leaders, and even a breaking point for families, which include:
New skills in existing roles, and
Skills required but not currently held for certain roles.
Aligning education and gathering expertise outside the family enterprise can be useful, but only if it’s in sync with the new vision and the talent mapping plan. What contemporary competencies will a new CEO or leader) need to be role ready against your new vision? Where can they gain fresh insight, experience and hands-on opportunities to lab test and experiment with unaccustomed contemporary competencies, while identifying what new roles are required, without constant comparison to the old guard?
Sell or tell? This is business critical for the next generation to be enthused and empowered to create a career for themselves that has both meaning and purpose within the family. It’s vital for the current generation to “sell” the opportunity rather than “tell” of the transition.
This gives the next generation an attractive proposition to craft their own entrepreneurial approach: the chance to be entrepreneurial from within, and be energised to develop within the transition timetable.
You need a truth teller — it’s nigh on impossible to do this successfully without external help. You need expertise that can challenge the politics and power dynamics, someone who is able to give both honest and frank feedback on the performance of all involved, however painful.
They will need exemplary coaching and mediation skills and be able to understand and manage both generations. Using external support instills objectivity, makes boundary setting much easier, clears up areas of ambiguity and responsibility, whilst also maintaining tradition and trust for a successful transition.
The writer is a business strategist and specialises in high net worth family business leadership succession. She’s on Twitter as @Follow_Fiona
