Succession planning is key to the sustainability of family businesses, yet many future leaders feel underprepared when it’s time to take over. Here’s why communication is key to building up their confidence.
Part of what makes family-owned enterprises so special is the shared legacy. The sense that people are working for a common cause and building something for themselves, their children, and maybe even their children’s children.
But just because successors have grown up in and around a business doesn’t mean they know all there is to know about running that business. In fact, a survey by the KPMG Enterprise and Family Business Australia (FBA) reveals almost two-thirds (64 percent) of future heads of family businesses don’t feel ready to take on the responsibilities of leadership and ownership.
Different generational perspectives are a double-edged sword for family businesses: they can be a source of conflict, or a strategic advantage.
“Younger generations tend to be curious, excited, innovative, while perhaps the incumbent has more of a ‘been there and done that’ mindset,” says KPMG Enterprise Partner Agnes Vacca, who is running a family business masterclass on how to harness the optimism of future leaders and embrace the wisdom of current leaders.
“But if you can get the two of them communicating openly and working together, you can strategically drive the business forward because you’re open to new technology and introducing new products and services, and complementing that with the wisdom of the older generations.”
Steve Heather, Managing Director and Principal Executive Search of Mining People International in Perth, acknowledges future leaders may be short on experience – and may “know a lot less than they think” – but believes this is more than made up for in other ways.
Since his son Scott joined the business five years ago, Heather says the former has been a “conduit to a whole raft of other younger people via a direct communication and an understanding of what those people want and what they can deliver.”
Heather is currently in the pre-planning stages of a potential future transference of leadership to his son or some other person. It may be early days but, if anything, he wishes they’d started investigating transition strategies even sooner.
“There’s a fair bit to do and none of it happens overnight,” Heather says. “We need to understand if we do take a particular route what that’s going to mean – what structures and processes need to be put into place, do we need to bring in somebody else in a temporary capacity, or get funding mechanisms in place to enable other (non-family) shareholders to be bought out, when they are ready and if that’s what they want of course? And people need more training, more coaching, more educating.”
Indeed, current leaders have an important role in sharing critical skills their successors need to take over and lead with confidence, including stakeholder management, stewardship, innovation, sales and marketing, strategic planning, financial management and people management.
Unfortunately, despite the fact that leadership transference wasn’t far off for some survey respondents – more than half (54 percent) were considering it within the next two to four years, and 18 percent within the next 12 months – 43 percent had no succession training in place. A number of successors also felt ‘in the dark’ regarding the future direction of the business.
The ‘socio-emotional wealth’ (SEW) of a business, which measures its non-financial ‘emotional value’, is vital to long-term sustainability and success. Unfortunately, without effective communication and succession planning, four key areas of SEW – family control, identification with and emotional attachment to the business, and the renewal of bonds through dynastic succession – can be eroded during transition, increasing the likelihood the business will be sold or passed on to non-family members.
“It really comes down to having very open communication,” says Vacca, “and understanding the needs of all parties, what they’re trying to achieve, and how it’s going to improve the business.”
This article was originally published on SmartCompany.
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