Many family businesses have grown significantly since the current generation of leaders took over. The gauntlet of difficulties that seasoned and prepared those leaders for today’s business environment — recessions, technology advances, regulatory changes, competitive threats, bad crops, supplier failures and numerous other challenges — makes those leaders reluctant to hand over the reins to the next generation.
The current generation of leaders is concerned about the lack of deep experience the next generation has. The concern is understandable. In fact, it is often said that you don’t want a stock broker who has never been through a market correction to manage your savings, and you don’t want someone who hasn’t survived a downturn to lead your business.
While the lack of experience of incoming leaders may be a legitimate concern, today’s leaders have to face the prospect of letting go of the reins. This step-down is a process — and it’s likely one of the greatest challenges the current generation will face. These leaders recognize both the mistakes they made in their early days of running the business and the extraordinary challenges businesses face today.
The key question is: How can the next generation of leaders get the experience they need to make the current generation comfortable enough to put them in charge?
We are in the middle of financial and operational challenges as great as — or possibly greater than — any in the past. Let’s use these events to develop and prepare the next generation, while supporting the well-earned retirement of current leaders. If opportunities are given to the next generation in this environment — perhaps with the oversight of existing leadership — then today’s family business leaders may be more comfortable with letting go.
Here are some ideas to consider as your family navigates this crisis:
Financial: Involve the next generation in understanding the challenges and coming up with solutions. Don’t just tell them what to do or how to do it; give them a seat at the table to identify ideas and let them practice leading the process. Discuss a variety of topics: How can you reduce costs to support revenue losses? What funding sources are available, whether public (PPP) or private? Are there changes you can make today that will help in the short term, while also supporting the long-term health of the business? With your oversight, give next-generation leaders the opportunity to develop creative solutions — and consider implementing the ones that make financial sense.
Human resources: Considering the underlying values of family businesses and the strong cultures these businesses foster, managing human capital is one of the most difficult areas for new leaders to grasp. Many family businesses take pride in never having a layoff, but the current crisis might test a family’s ability to honor this practice. How can you save jobs? What is the proper way to treat staff, whether you are keeping them, laying them off or furloughing them?
If you have to lay off employees, consider including the incoming generation of leaders in the decision-making process, inviting them to participate in creating communications and attending meetings. One of our clients said he thought about sitting in on those meetings with the incoming leadership team in order to support them, but then decided it was better for them to do it on their own, although with coaching prior to the meeting. For employees you are retaining, how do you continue to train and coach them when they are working remotely? Thoughtful human capital development can be a challenge, but you can help the next generation of leaders find their voice.
Operations: Most businesses are substantially changing their operations, such as transitioning staff to working remotely, providing different technology to support remote work, implementing social distancing in the workplace, and changing how staff connect and interact with clients, vendors and advisors. Can production be modified to become “hands-free”? Can operations change so that staff can maintain proper social distancing? How do you clean the work environment well enough to make employees safe? How do you ensure that customers are confident that your output is clean and safe?
Next-gen members can lead some — or all — aspects of defining and implementing such changes. While some operational practices may revert back at some point, many are likely here permanently.
Strategic planning: Now is a good time to do strategic planning. We often hear that leaders are too busy to stop and create a five-year plan, but such a plan is more critical today than ever before. How are you planning to come out of this crisis stronger and to grow faster? This is an ideal time to consider where you want to grow, define your goals and create a detailed plan for moving toward those goals. Perhaps you might commission the next generations of leaders to create a five-year plan to help ensure that the business thrives as it comes out of this crisis and moves forward.
Take time now to identify what may be keeping you from letting go of the reins of the business, and then be intentional about using this crisis to prepare your future leaders to take their next steps. Your business, your family and you will all benefit from the process.
Private Leader, PwC US