Planning Succession From One Generation to the Next

Stan Sung

Stan Sung

Stan is the Founder and Managing Director of GENRICH Family Office. He has been in the financial services industry for 15 years and originally founded GENRICH in 2008 as a tax and asset protection consultancy.

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Family businesses are built on the family’s values, efficient communication, long-term planning, trust, and hard work. Over the years, research and surveys have been collected to analyze family businesses: how they manage, strategize, and transition from one generation to the next. To successfully transition in the areas of leadership, governance, growth, finances, innovation, and character, a family business has to formulate a succession plan. A succession plan is key to reduce conflict that may occur and forces the business to think long-term in regard to leadership.

During the transition, leadership must recognize and accept gaps between the current generation, the next generation and the new ideas introduced by them. The process of succession requires an open mind and patience from both generations. The preparation and transition will introduce new ideas, differences in perspective, expectations in the direction the business will go in, challenges as the world constantly changes, and responsibilities for the next generation to take on.

Current Generation vs. Next Generation

The current generation and the next generation will have different views, ideas, and work ethics to achieve success. Although the differences have always existed from one generation to the next because each generation is exposed to something new such as technological advancement, cultural change, easier way of life, and greater hardships, the difference between the two generations and the change that would occur is important for innovation and forward movement.

Decision makers of each generation – current and new – must embrace the idea of letting go, since at a family level the relationship is changing from child-parent to adult-adult (Deloitte 2016). The sticky baton syndrome, or the current generation holding onto their responsibilities, is often combined with a reluctance to even discuss the process or timing of succession. This exposes the three gaps that family businesses experience during the transition of succession: the generation gap, credibility gap, and communication gap Next Generation Survey 2016.

If the succession process is planned ahead, the gaps can be reduced and a level of acceptance in differences can be solidified as long as the family values or character stays intact. In the end, the family business has the same goal; regardless of the generation, the family wants to continue a legacy of success. Each family member involved in the business must accept the degrees of change that the next generation may introduce because about 80% of the next generation plan on making some changes within the family business, and over half of them are thinking of new strategies in how the family business operates, manages, and continues to grow (Deloitte 2016).

Preparation

The succession plan requires a significant amount of preparation to insure the next generation has the skills and capabilities to be in a leadership position. That preparation includes gaining experience outside of the family business, experience within the family business, and the passion to be a part of the family legacy. It is important for the next generation to learn the family business initially to make the decision if they would even consider a position in it. This largely depends on if they agree with the values, culture, and mission.

For some next generations, it takes a mentor, experience in another career, or another factor to have the “lightbulb moment” of giving the family business a try (Next Generation Survey 2016). This kind of moment happened with Arian Stephans when he was speaking to a mentor about his future and his mentor brought up the path of succession for the family business: Nature’s Path. He decided on the path of succession because he realized the values of the business resonate with him.

When the next generation knows their path will be succession of the family business, it is important that they gain an understanding and knowledge of the company’s operations, challenges, decision making process, structure, etc. Each family business has their own strategy of how to prepare the next generation. According to the Next Generation Survey 2016, “80% of respondents attend board meetings and many are doing so to watch and listen. Other ways many prepare for a governance role is by taking courses to learn what professional ownership entails.” There are many options to how an individual going down this path can gain experience.

There are family businesses that have the next generation start from the bottom at the most entry level positions to learn. Preparing a next generation this way helps them gain respect from employees and board members outside of the family. Regardless, if they start from the bottom or from the top, the next generation will always be working harder to gain respect, prove their abilities, meet their own high standards, and continue a legacy that depends on them. An example of a next generation that started from the bottom is Kiersten Symes. She is in HR and training other people now, but to get there she had to accept constructive feedback throughout her career progression. She met the expectation to get to her position, where she can now make decisions that further her expectations for the family business.

Expectations

Each individual in the next generation position is expected to have leadership qualities and skills such as “self-motivation, discipline, effective communication, learning agility, self-awareness, adaptability, and versatility” (Veslor 2015). Leadership development is an important part of the succession plan in order for the next generation to meet expectations. Expectation expands to every aspect of the family business when introducing a next generation, from implementation of a new creative idea to new innovative strategies. The next generation would like to bring in experienced non-family managers, expand to new geographic markets, diversify into new products and/or services, and establish a new entrepreneurial venture to run alongside (PwC 2016). All these actions forces change upon the way the family business operates.

It is expected for the next generation to be more willing to take risks to grow the company’s investments, expand to uncharted territory, invest into new technology, and bring in outside leadership. Alongside this behavior, there is an expectation for guidance, too. The Next Generation Survey 2016 states that “91% of the next generation would value continued support from the current generation when they take over.” This expectation for guidance helps reduce the gap between the current and next generation; it leads to a better transition, if in the beginning the guidance is very prevalent and then slowly fades into the background.

Reality Check

The process of succession is challenging. It will most likely be difficult to balance personal issues and professional issues in the work space; There will always be a pressure to keep the family business relevant. That challenge of staying relevant will constantly be brining upon change, regardless of the change in leadership because of the global trends that impact the business. For example, the global trends that will transform business over the next five years are technological advances, shifts in global economic power, demographic shifts, resources scarcity and climate change, and urbanizations (PwC 2016). These changes will force innovation that the next generation can introduce.

The next generation will be constantly in the spotlight. Following the ten golden rules for ambitious next gens, created by Juliette Johnson, can help relieve some of the pressure.

The 10 Golden Rules for Ambitious Next Gens

1.    Get outside experience first

2.    ‘Try before you buy’

• Get some experience of what it’s like to work there (family business), the culture, and the sort of role you might aspire to eventually

3.    Only take a role you are suited for

4.    Be aware of your own behavior

• Develop your own ‘brand’ and work ethic

5.    Don’t put pressure on yourself

6.    Insist on a proper appraisal

7.    Handle change with care

8.    Communicate, communicate, communicate

• Make sure to balance the personal and the professional relationships

9.    Make sure succession is a process, not an event

10. Enjoy it!

Overall, as challenging as succession planning may be, it is very necessary to make the transition in leadership successful. It is important to continue the many legacies that family businesses have started. Harvard Business Review states that “family businesses account for an estimated 80% of companies worldwide and are the largest source of long-term employment in most countries.” Long-term employment is possible because family businesses focus on their values and make sure they stay viable with each succession transition. The success of family business will continue from one generation to the next as long as the preparation and expectations are clear, the communication is transparent, and change is accepted.