How to Bring in the Next Generation

A recent report by KPMG in Australia explores the education and progression of next generation family members and their approach to changing business strategy, write David and Paul Karofsky. (Click here to view the report)

This resonates with some critical issues faced by several family businesses we are currently working with. Here are the key points to consider:

Why enter the family business?

We ask family members why they want the next generation to be part of the family business. Some respond that it’s the best way to continue business longevity while ensuring a healthy retirement. For others, it’s a way to reconnect with children and provide them an opportunity they may otherwise not have. For some in the younger generation, joining the business comes from a sense of obligation. For others, it’s simply an assumption because that’s what you do; my father did it, my older brother and sister did and now it’s my turn.

Facilitating conversation around the motivation helps to minimise unrealistic expectations. If, for example, parent and child seek to repair a strained relationship, entry into the family enterprise is the wrong solution and can unwittingly put both the family and the business at undue risk.

Entry criteria

In addition to a solid education, a standard entry criterion has long required work outside the family enterprise. As the KPMG survey says: “Often a pre-requisite before the next generation member joins the family business is to go out and get outside experience for three to five years… so that when they do enter the family business they’ve got… a wealth of experience to contribute. That helps them form their own credibility as a family business member, but also helps them forge a career path that might be different than the incumbent generation.”

Another compelling reason for working in a different culture and value system is to experience both desirable and undesirable leadership qualities under a different boss so younger generation members might become better leaders themselves.

Creating a foundation for entry into the family business

“Growing-up” in the family business doesn’t equate to “knowing the business.” We urge that seniors advance that knowledge by sharing the history of the company; how, when, where and why it was founded and what it took to build the company to where it is today. Stories from the past will provide an appreciation and respect for the culture and values of the organisation.

Younger generation family members must also establish their own identity- not simply what role they will play, but also their values and vision to create their own footprint instead of just filling the shoes of the senior generation. We encourage younger generation members to contribute to the strategic planning process. As the KPMG survey cites, “strategy is a key focus of their [next generation] change going forward… a more formal strategy for growth and diversification, compared to the way businesses have been managed in the past.” Giving the younger generation members room to spread their wings allows them to be who they are and provides them with a significant sense of ownership in taking the enterprise into the next generation.

Rules, roles and responsibilities

Expectations need to be clear. Hours of work, for example, often pose a challenge. When our senior clients believe in the rule of “FILO”- first in, last out, we help them understand that some younger generation members are looking for a more balanced work/life experience. Seniors don’t see the younger generation members sending emails at 11 PM while working from the home office.

Just as there need to be boundaries between work and home, there needs to be a distinction between the roles of “parent” and “boss”- the role of father vs the role of CEO or the role of daughter vs the role of employee. At work, for the most part, it is important that the CEO be the CEO, while at home or Sunday dinner, he plays the role of father. And vice versa holds true for the younger generation.

It is no easy task bringing the next generation of family members into the business. The changing dynamics of business, people, culture and values all play a role in how to address this challenge. But with constant communication, some entry guidelines, a bit of history, clarity on roles, and a little old fashioned love and respect, there is no doubt that the odds can be overcome and the family enterprise can succeed for generations to come.

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