According to the latest research by KPMG Australia there is more to transition in a family business than deciding what date the leader will step down and deciding who will take over. It’s a complex task and needs a plan – not just a list of tasks but one that encompasses the business imperative, family goals and aspirations for the business’s future.
In conjunction with the University of Adelaide’s Family Business Education and Research Group they talked with seven family businesses about the critical actions for long-term sustainability. Three key themes emerged: succession planning, leadership diversity and entrepreneurship across generations.
There is no one-size-fits-all approach when it comes to succession planning and certainly planning retirement based on age isn’t right for everyone. Knowing when to ‘go’ can be difficult and in a family business, where your connection is personal, it can be challenging. But ‘hanging in’ can be detrimental for the next generation who may not be willing to stay with no roadmap for the future.
One of the benefits of a succession plan is the opportunity to build diversity within the leadership. While having a family member is key in Australian family businesses and ideally the leader should be selected on merit, readiness and passion and not gender. The transition plan needs to include all of the interested and capable next generation to encourage the next generation to explore and communicate their interests and commitment to pursuing a leadership role. COVID-19 has exacerbated the caring responsibilities of work-oriented parents even further. and just as large organisations facilitate diversity by introducing flexible working, so should a family business.
Importantly, work early to develop knowledge, skills and experience in the next generation to ensure they are prepared to step up to lead.
It is often said the first generation creates the wealth, the second grows it and the third blows it. While this is a stereotype, it is often true that the greater the pool of financial resources, the more risk averse and the less interest in trying to grow it.
In many family businesses the second and third generations stand to inherit significant capital, and many find themselves having to decide whether or not they want to be safe custodians of the wealth or wish to grow it further which may involve some risk taking.
Providing emotional and social conscious can help overcome the pitfalls of entitlement and encourage commitment among younger family members. Part of this is encouraging open dialogue where all generations have clarity around each other’s goals and values on what they want the future of the business to be.
To continue growth, family businesses need to maintain the entrepreneurial spirit that first inspired the founder.
There are many effective ways of sustaining this between generations.
Implementing formal succession plans, so all members of the family know their responsibilities now and into the future allows the next generation the freedom to develop entrepreneurship skills within the safety of an agreed plan and the safety to fail in the security of the families’ support of new ideas and ventures.
Whilst family businesses largely smoothly navigated through COVID-19 the fallout will continue for generations to come. Planned investment in these future generations will ensure the family business continues long after the immediate effects of the pandemic fade.
Check out the full report below: