Today and beyond: The next generation challenges the status quo of family business

When it comes to the future success of the family business, you know what you want, and it comes down to one word: growth. Sixty-five percent of you say it is a top priority. This isn’t surprising. For family businesses, growth is the product of a stable business and a measure of success in a changing world. It’s essential to maintaining and building on the legacy that previous generations created and to securing the family’s continued prosperity and wealth. It’s a message from the next generation that they can deliver, too.

As the family expands through the generations, this growth needs to be in double digits. But growth alone is not enough. Success for family businesses is multidimensional. 

The key question now is how you’ll deliver growth when faced with the existential challenges of today: climate change, pandemic disruption and technological advances. What capabilities do you need, as the leaders of tomorrow, to ensure the prosperity of your family business? And how can you prove yourselves capable custodians of the business’ and family’s future?

Growth is a complex area for family businesses, with emotional as well as financial elements in the mix. You may know the rule of thumb: every two to three years, the business needs to grow by 10% to keep family wealth at a constant level as the generations expand. It’s a tough ask for any business, made even tougher by the pandemic and the threat of climate change.

We believe that a business-as-usual approach, one that continues the way the family enterprise is currently run, won’t be enough. As leaders-in-waiting, you’ll have to develop your own blueprint for success. And to maintain stability and achieve the growth necessary to earn your ‘licence to operate,’ you’ll find yourself pushing boundaries and challenging years of established thinking—‘the way it has always been done.’ You’ll need new capabilities beyond digital expertise to deliver on environmental, social and governance (ESG) concerns: to reach net zero, to manage the evolving workforce trends as we face the ‘great resignation’ and to identify new markets in a post-pandemic world.

For the moment, it’s surprising just how aligned the generations are in their priorities. The most significant divergence is on the topic of sustainability, which is more of a focus for Gen Z than for its elder cohorts.

It’s true that being focused on digital skills and new technology proved invaluable during the pandemic. In our 2019 NextGen survey, 64% of your peers felt that they could add significant value to the business by helping to develop a strategy fit for the digital age. Then, the pandemic presented an urgent need for your expertise. Today, almost half of you (44%) are actively engaged in adopting new technologies. For one in five of you, the pandemic accelerated your engagement with the business in this area.

You clearly have much more to give. Sixty-four percent of you believe there’s an opportunity for family businesses to lead the way in sustainable business practices. We’d argue that you need to speed up your plans. Seventy-two percent of you say you expect to be involved in increasing your business’ focus on investments for sustainability in the future, but only 28% are doing this now. And though two-thirds of you expect to be involved in reducing your business’ environmental impact in the future, only one in four is already involved today.

Research by Family Capital shows that in recent years, publicly listed corporations that prioritise ESG and have better ESG risk ratings, as a group, than family businesses have begun to outperform family businesses in terms of market capitalisation. These results indicate that family businesses are losing their trust premium. As ESG climbed up the investor agenda, family businesses lagged behind, and investors took note.

A crisis like the pandemic reminded businesspeople at all levels that their training and career path can’t prepare them for everything. Indeed, 28% of you believe the pandemic identified a need for upskilling and additional education. But when we asked what you think you need to learn, the list was a familiar one: finance (53%), leadership development (48%) and business model innovation (41%).

Most of you already have excellent business qualifications—89% of you have completed at least a university degree, the majority in business and finance, and 17% of you hold an MBA or doctorate. But is more of the same the right solution today?

Family businesses—indeed, all businesses—need new perspectives if they’re going to take full advantage of all the opportunities in the transformational years ahead. Business schools are beginning to recognise this, and many are exploring a more multidisciplinary approach to business and leadership, one that places a far greater emphasis on people, planet and purpose, instead of pure profit maximisation.

In its Responsible Business Education Awards 2022, the Financial Times quotes Omid Aschari, associate professor at the University of St. Gallen, in Switzerland, on the need to embrace a new approach to preparing the next generation of leaders that reflects the existential crises the planet is facing: ‘The risk is that if students do not see the real world reflected in the curriculum, then business schools will become museums of management history.’

Our survey shows how the pandemic has brought family business generations together. You told us that it strengthened cohesion, accelerated succession planning and united everyone towards a common goal: to drive business growth. It brought forward your involvement in the business, and many of you say that it strengthened communication between generations. Almost half of you feel more committed to the business than you did before the pandemic.

But there’s also a disconnect in levels of responsibility. Indeed, our previous survey showed that more of you were given significant opportunities in the business before the pandemic than today. In our 2019 survey, 48% of you said you were given significant internal operations to lead. Now it’s 28%. In 2019, 36% said you were used as a sounding board. Today it’s 32%. And today, one in four say it’s difficult to get an understanding of how the business or Family Office operates. The current generation is even less keen to let go than in the past, even though it’s clear that you, the future of the business, want to prove you’ve got what it takes. 

The decision to give control to the next generation is a huge, once-in-a-lifetime event. Owners need to feel confident that the business is in safe hands, and you, its future leaders, need to provide the reassurance that you understand the challenges and have the skills to protect and grow the business.

The good news is that the pandemic focused the minds of family businesses on succession planning. In PwC’s Global Family Business Survey 2021, 30% of the current generation said there was a robust plan. Today, 61% of NextGens say the family has a succession plan. Still, the current generation is holding on tight for now: 39% of NextGens say there is a resistance in their company to embracing leadership change. 

But what being prepared for succession means in practice is rarely articulated—and in the absence of that discussion, many of you believe that the way to win the confidence of the current generation is to follow its example, rather than forge a different path. Our survey results show that tendency—and they explain why your firm conviction that ESG is tied to growth has yet to be translated into action. 

An honest generational contract that communicates expectations on both sides will inspire confidence. Now that communication is clearer between the generations, as noted above, and better succession planning is in place, it’s time to work out the details. What leadership skills and experience are required to allow the business to thrive? What will deliver growth in the future? And what are the stages and landmarks on the route to succession—what do NextGens have to achieve to be awarded a place on the board, for example? (See ‘Educating future leaders,’ above.) 

If family businesses are looking for a quick win in terms of widening the diversity of their thinking, they should start by looking at the relative role of male and female NextGen members. Although women, like their male peers, want to focus on business growth as a top priority (53% for women versus 69% for men), they’re marginally more focused on ESG concerns: improving working conditions and sustainability are higher on their list than they are for their male counterparts.

The big difference comes down to leadership expectations: 35% of your female peers believe their male counterparts are more likely to be expected to run the business. Asked the same question, 41% of men believe they are more likely to lead. This could be because women are less likely to be in a leadership role now—43% of women currently hold leadership positions versus 59% of male respondents. One-quarter of female respondents say they need to understand more about the business before they could suggest any changes, compared with 13% of their male counterparts.

This should send a clear message to the current generation: focus on bridging the gender gap in the family.

Creating the double-digit growth that family businesses need in order to ensure that the generations maintain the wealth of the business is a tall order in a world gripped by crisis. And it’s a big responsibility for you as NextGens to inherit. As noted, family businesses that haven’t fully embraced ESG are already underperforming their nonfamily business counterparts in the capital markets. That’s why it’s important to bring together the aspirations that you have to lead on ESG with the commitment to take action.

It’s notable that family businesses that have a Family Office understand the importance of ESG in securing their future prosperity. Forty-two percent of you say that your business has a Family Office, and the survey data shows that this triggers more professionalism throughout the business. Businesses that have a Family Office are more advanced in integrating ESG thinking—43% have a sustainability strategy, for example, compared with 37% of those with no Family Office. They also show more discipline regarding family governance, in part because they represent larger families; they’re more likely to have a written constitution and a succession plan in place.

Wealth management and the concept of ownership competence go together. Ownership competence is the skill through which ownership—and the control it implies over resources—is used to create value. This will be vital in setting the future business growth agenda.

Ownership competence, a model developed by Professor Thomas Zellweger of the University of St. Gallen, focuses on three elements that align with what we call the owner’s agenda:

• What is owned: how owners combine resources to create value today and in the future.
• How it is owned: setting family governance, choosing leaders and managers, and providing incentives to maximise value creation.
• When it is owned: timing of ownership decisions, such as succession planning and the staging of investment.

If a business is to create sustained growth, it must pay attention to all three. You as NextGens have your own approach to these three elements. From our survey results, we see that you lean towards a more focused ESG agenda, but either don’t think you have the green light to move faster in this direction or aren’t yet making it a priority.

Winning the confidence of the current generation and demonstrating that the business will thrive in your hands will take work. The world is changing, and the business techniques of the past will no longer be enough. You must earn the right to challenge the status quo and to discover the growth opportunities to ensure your family legacy. It takes what we call a community of solvers: people coming together with different skills to deliver success.

1. Reimagine business success and build the foundations of sustainable growth. ESG is becoming pivotal to business growth—and, as NextGens, you need to take a lead in building an ESG strategy. You now have many more options for acquiring the new skills you’ll need to address these challenges. For example, you can learn what developing a net-zero strategy entails, how to decarbonise your business footprint and what impact your business has on others.
2. Don’t be afraid to take a different path. Don’t shy away from fundamental questions. A new book by PwC’s Paul Leinwand and Mahadeva Matt Mani, Beyond Digital: How Great Leaders Transform Their Organizations and Shape the Future, sets out seven leadership imperatives that are essential to shaping a company’s future. The first is to reimagine the company’s place in the world: what unique value does your company create? And what capabilities allow you to create that value better than anyone else? You, as NextGens, are well-placed to speak up and take action.
3. Articulate and negotiate a generational contract. Though family businesses are more willing to talk about succession as a result of the pandemic, the stages and conditions of succession are often unclear. It’s vital to have an ongoing conversation about what will drive growth in the future and your role in achieving it. It’s also vital for there to be a clear understanding of what you need to do, as NextGens, to win the trust and confidence of the current generation.
4. Hone your leadership skills. You know you have a lot to learn and still feel you need to prove yourself. But leadership today requires a different set of capabilities. It’s time to question whether you want to create yourself in the image of the older generation in order to be recognised as a potential leader. New times require new types of leaders.

If family businesses are to succeed in a rapidly changing environment, they need visionary leadership.

This is a watershed moment. It’s time to reimagine what success means—and you, as NextGens, have the foresight to lead the way. You know the path the business must follow; it’s up to you to become the leader your business needs. Be yourself. Be different. Drive change.

About the NextGen survey

PwC’s Global NextGen Survey 2022 is an international market survey among next-generation members in family businesses. The goal of the survey is to get an understanding of what NextGens are thinking on the key issues of the day, what role they are playing and what roles they think they should play. The survey was conducted online in collaboration with The Family Business Network (FBN). There were 1,036 interviews in 68 territories, between 8 October and 12 December 2021.