Managing succession well is key for family businesses. In our 2012 family business survey, 41% of participants said that they were looking to hand the business over in the next five years.
Our latest research, of 207 next generation family business leaders, identifies three gaps that family business need to bridge in order to manage the transition process effectively – the generation gap, the credibility gap and the communications gap.
The world has changed in the last 30 years and family firms can struggle to keep pace, especially with global megatrends like demographic shifts and digital technology. The current generation is not always confident that their children are ready and able to take over, and more family firms are bringing in external CEOs.
The next generation can no longer assume they’ll run the business one day: 73% of those likely to take over the business said they’re looking forward to doing this, but only 35% thought it was definite, and as many as 29% thought it only fairly likely at best.
At the same time, 86% of the next generation want to do something significant when they take over, and 80% have big ideas for change and growth. Many of the next generation see the need to ‘professionalise’ their family firm, by introducing better governance, and more rigorous processes in areas like finance.
88% of the next generation say they have to work harder than others in the firm to prove themselves, both with colleagues and customers: 59% consider gaining the respect of their co-workers as one of their biggest challenges.
Many of the next generation have worked in another business first, as a way of establishing their credibility: only 7% went into the firm after school – 31% went to university, and 46% worked elsewhere, often as part of a structured development plan.
Family businesses have to manage personal as well as professional relationships, and this brings with it the possibility of conflict: 22% of the next generation are concerned about working with family members, and understanding the family dynamic.
As management shifts from one generation to the next, the older generation has to understand the difference between ‘influence’ and ‘control’: 87% of the next generation think their parents have confidence in them, but as many as 64% think the current generation will find it tough to let go – the ‘sticky baton’ syndrome.
The key is clarity of roles and responsibilities, and openness in communication, especially in relation to succession planning, where an independent mediator can help bridge the gap, and ensure the next generation are prepared to succeed.
The most successful family firms are those with a good balance between professional management, responsible business ownership and a healthy family dynamic. PwC’s family business services can help you build lasting value for your family enterprise.