NextGens are ready to lead – on their own terms

Ng Siew Quan Asia Pacific Leader, Entrepreneurial and Private Business, PwC Singapore 09 October, 2020

This article first appeared in the Q4 2020 issue of the SID Directors Bulletin published by the Singapore Institute of Directors.

Family businesses are set for regeneration, and the majority of (mostly young) next generation leaders are deeply engaged in their family enterprise. Many see themselves as agents of change in driving purpose and attracting talent, even if some feel they are held back and need validation.

Family firms in Singapore are likely to see a re-emergence of active participation by family members, over the next few years.

PwC’s recent Global NextGen Survey 2019 tapped into the views of nearly 1,000 respondents (“NextGens”) who are becoming or aspiring to become, family business leaders. Survey participants widely expressed interest in taking up the mantle of leadership and forging ahead with the family business. Many however said they would seek to introduce change.

A majority of the respondents in Singapore are deeply engaged in their family enterprises. Singapore NextGens are more actively involved than their global counterparts, with more than half of them (59 per cent) reporting that they have a management role in the business (compared to 50 per cent in Asia Pacific and 39 per cent globally). And over a third (37 per cent) report that they are in executive director positions (compared to 28 per cent in Asia Pacific and 26 per cent globally).

While the NextGens are committed and ambitious, they yearn for more trust and mentorship. Over the next five years, NextGens are looking to move away from management and executive leadership roles. In fact, quite a number of them are aiming for governance roles, including roles as non executive director, in their family businesses.

Agents of change

As digital natives, Singapore NextGens mostly believe they possess the knowledge and skills to help their family business succeed in a disruptive landscape. An overwhelming 97 per cent of Singapore NextGens think they can add value in helping their family business develop a strategy fit for the digital age. In Singapore, 49 per cent of NextGens believe their company is better than competitors at using technology effectively, and 32 per cent say their business is at the same level as the competition.

In addition to developing a strategy fit for the digital age, the respondents are also confident of contributing to the development of other business priorities. For example, 76 per cent say they can add value in professionalising and modernising management practices, 66 per cent in attracting and retaining talent, and 55 per cent in international expansion. These factors are critical for any business to survive and thrive, especially in these challenging times.

The survey also found a strong correlation between what the NextGens think their business needs are and where they feel they could add significant value. The alignment in the key areas of focus in business transformation of their family firms shows there is a role for the NextGens in navigating their businesses through this unprecedented time.

Problem-solving and strategic thinking and leadership are seen as critical assets that would add value to the family business. These are vital skillsets that many feel they are able to bring to the table and boost their family firms. To develop these skills, NextGens look to their family networks (70 per cent), conferences (68 per cent) and their peers (65 per cent).

The NextGens are cognisant of their responsibilities, and their responses indicate how seriously they view personal improvement. While NextGens in Singapore think they could help to add value in upskilling staff, more than half of them feel that they need to develop their own skills (56 per cent in Singapore, 62 per cent in Asia Pacific, 61 per cent globally). They do not wish to take their leadership roles for granted, and are willing to invest time and effort in training and mentoring to get themselves ready.

Room for doubt

Research shows that only about 30 per cent of family businesses survive into a second generation, and this remains a key cause for concern in most family businesses.

Indeed, there appears to be some hesitation and self-doubt among NextGens in Singapore. A worrying 42 per cent of NextGens in Singapore say their current level of expertise is a major constraint on having the impact they would like to make. This is almost double of the global figure (22 per cent) and in the Asia Pacific (24 per cent), and points to a lack of confidence in opportunities for development within the family business.

For a family business, transition is a once-in a-lifetime decision. Consider the thorny and sometimes fraught emotional, legal and technical issues that are specific to developing family enterprises. The takeover of a family business by the next generation can exacerbate the special stresses – or, conversely, highlight the special advantages – of keeping the business in the family.

However, as reluctant as many families may be to tackle the issue, the health and longevity of a family business depend on careful transition planning, and on communicating the results of that planning to the right stakeholders at the right time.

Same passion, different paths

In general, there are four paths to success among NextGen leaders, depending on their style of leadership and their strategic focus: Stewards, Transformers, Intrapreneurs and Entrepreneurs.

Four pathways to success

Stewards

Focus on protecting the profitability of the family firm, and ensuring its long-term sustainability.

Transformers

Take on the task of driving significant change in the family firm, with the scope and support to do so.

Intrapreneurs

Set up their own venture within the family business, often with family financial backing.

Entrepreneurs

Set up their own separate venture outside the family firm, with no profits going back to the family business.

The survey identified a greater proportion of transformers in Singapore (53 per cent) compared to Asia Pacific (47 per cent) and globally (46 per cent). This indicates that there is a greater willingness among Singapore NextGens to participate and grow the family business on their own terms by bringing significant changes to the family business and leading the major change initiatives.

The next generation of leaders in local family businesses are comfortable with exposure to and use of technology as it would lead to standardisation of procedures and proper trail and transparency. They are willing to invest in external talent and other governance infrastructures such as professional and modern management practices. In addition, NextGens are committed to self improvement before taking on leadership roles. They value work experience to acquire management skills and obtain first-hand opportunity of handling critical situations regularly.

This shows a willingness to draw the distinction between ownership (the right to possess) and stewardship (the responsibility to direct). NextGens do not simply inherit the wealth from the family business but also the family culture, value systems and traditions valued by the customers and other stakeholders.

At the same time, the succeeding generation of family business leaders also acknowledges that the mix of family dynamics, business strategy and ownership criteria can create an emotionally charged environment that makes decision-making and day-to-day management challenging. A formal structure to address these sensitive issues is not just advisable but unavoidable. Consequently, having non-family external members on their boards or participating in family businesses as understudy without any formal roles is a growing trend for businesses run by the NextGen.

It appears that, intentionally or instinctively, the NextGens aim to lead and expand their family businesses by adopting a more professional approach. While they also seek to leave a legacy of their own, they do not intend to create an environment where conformance is sacrificed at the altar of performance.