While it’s challenging to make smooth leadership transitions in any business, transferring the leadership of a family business – and possibly changing the ownership structure simultaneously – can be even more complex. In family business succession, not only are the future prospects of the business in the balance, but how the choice of a successor affects the entire family is a key consideration as well.
Shifts in the demographic landscape are adding to the intricacy of family business succession. I believe they’re also making it more interesting. People are living longer, and now we’re seeing as many as three, or even four, generations of a family working alongside each other, contributing a diversity of generational views and ideas.
Understanding generational impact
Given this growing multi-generational environment, it’s important to gain a deeper understanding of today’s family business dynamics and the impact that different generations are having on family businesses and their succession plans. With that goal in mind, KPMG Private Enterprise recently aligned with the STEP Project Global Consortium, a globally applied research initiative that explores the business practices of family businesses and how their leaders are putting them into action.
The collaboration began with the STEP 2019 Global Family Business Survey (PDF 19.8 MB) in which more than 1,800 family business leaders across the globe shared their views on the impact of widespread demographic and societal changes. The survey findings were augmented with in-person interviews among selected leaders in every region of the world.
The research data and real-world experiences of these families has provided a unique perspective on the impact that each generation is having on their family businesses. Their insights are presented in a four-part co-authored article series, the first of which is entitled “The courage to choose wisely – Why the succession decision may be a defining moment in your business”. It tackles the subject of family business succession, the importance of choosing the right successor at the right time, and the impact of changing demographics on succession choices.
There are two insights regarding succession planning that I found of particular interest in the study.
- Only 47 percent of the respondents reported having a contingency plan to guide their businesses if something unexpected should happen to the leader. If COVID-19 has taught us anything, it’s that we should be prepared to expect the unexpected for the foreseeable future and remain nimble in order to deal constructively with whatever may come our way.
- A well-thought-out succession plan is a powerful tool for ensuring the smooth transfer of power when the leader of the business is ready to pass the baton at a defined future date. It’s equally valuable for responding quickly to unexpected events. Several family business leaders who contributed to the study emphasized this point, noting that they have gained a new appreciation for succession planning after unexpectedly having to assume the reins of their family business. As a consequence, they are making sure that contingency and succession plans are in place to protect their families and businesses for future generations.
The value of multi-generational views
Across the generations, there is an understandably wide range of views among family business leaders and their successors regarding their vision of the future of the business, management and ownership succession considerations, and the factors that affect succession decisions.
Reinforced throughout the study and the conversations we had with family business leaders is the critical role that older generations play in passing along the company’s foundational history and its enduring purpose and values to future generations of family members. Added to that is the important role that next generation family members can contribute to that foundation by looking ahead – sometimes far ahead – with a refreshed approach to the business that may not have been envisioned before. Leaders pointed out that capturing the contributions of all generations is adding to their businesses’ agility to pursue new opportunities while also making sure that the family business character and core principles are maintained.
Making the right choice for the times
Choosing a next-generation successor who has progressive ideas and a potentially profound new view of the future is not a decision taken lightly, and it is often a courageous decision for the current leader to make.
As one family CEO in Saudi Arabia expressed during an interview, “The generations coming behind us have a different mindset – a different ecosystem – that isn’t right or wrong, it’s just different. They are inspired by different things, they are fast, machine orientated and deeply involved in social media. To engage their interest as potential successors, there has to be a psychological attachment. It’s important for them to see that their business has a social purpose. That’s what will continue to motivate them.”
A strong sense of purpose is a distinguishing characteristic of family-owned businesses. The leaders who contributed to the study reaffirmed that the strength of their businesses will continue to be built on their commitment to purpose and a strong base of values, while also tapping into the opportunity for transformational business innovations. Those innovations recently introduced by Gen X and Millennial family members in response to COVID-19 are excellent examples of what next generation family members can contribute.
I believe the inter-generational contributions within family businesses are providing many of them with an unmatched competitive advantage. You will find several of their personal stories and company profiles here and in “The courage to choose wisely”.
I encourage you to take the opportunity to explore the experiences and insights they have shared in this article and in the second co-authored article in the series, which will be released within the next 2 weeks. Entitled “The power of women in family business – A generational shift in purpose and influence”, it takes a close-up look at the demographic shifts that are changing the role of women in family businesses and the unique competitive advantages they can deliver.