Founding and growing a business is one thing, but passing the baton is just as important. In private and family enterprises, it’s essential to think of the future first. Many small-to-medium enterprises and family businesses share a common risk – a lack of succession planning. It is easy for founders or chief executive officers to get so focused on day-to-day operations that they fail to consider future leadership. KPMG Partner Dominic Pelligana is adamant that a succession plan is vital for a sustainable business model. “Succession planning is about developing a pool of capable leaders - get people wrong and you put the business’s ability to perform at risk,” he said. In its simplest form, strategic planning involves setting a clear plan and then aligning an organisation to execute that plan. That is, it requires a plan and capability. It is also important to understand and align where the owners, the board and management believe the organisation is in its lifecycle, and the leadership style required. Only then can it have a meaningful conversation in relation to strategic planning and developing and/or acquiring the capabilities (succession planning) required to execute the plan at the board and/or management levels. What Good Strategy Looks Like Pelligana described succession as the orderly transfer of management (the CEO), control (the board) and equity (ownership) to the next generation. For company founders who have a business in their bones, he recognised that it can “take a bit of humility to step aside and let another CEO take over the business.” However, getting succession on track can actually help a founder grow their business without fear of losing control and suffering burn out. He said signs that a business is off track to succession include a lack of awareness of issues and challenges, a lack of goal alignment and trust, and inability to separate from a focus on operations to future management. In family business, another poor sign is blurring the best interests of the business with interests of the owners or family. Signs that a business is on track include awareness of the issues and challenges, having inside and outside perspectives, and strong alignment on the key issues and context. Clear plans for the transfer of management, control and ownership are essential, along with the trust and commitment to follow the plan. The key is to build a leadership team that complements the founder’s entrepreneurial strengths, along with professional management capabilities, Pelligana said. Boards need to be active in this process, helping to align activities to the future vision. An Inside Perspective Succession in family business can be unique due to the competing expectations of the founders and subsequent generations. “People say it’s the third generation [that lets a family business down], but I think the first generation hangs on too long,” he said. Pelligana said the first generation of family business is generally “all about survival,” the second is usually about establishing professional management systems, and the third is often about financial strategy. “How do we allocate capital - are we all in?” he said. Pellagina spoke to Claire Mackay and Tim Mackay, siblings who are Principals of Sydney-based family business, Qantum Financial. Their father, Bill Mackay, set it up in 1994 and is now the Chairman. Fortunately for succession purposes, Claire and Tim shared their father’s passion for financial management, but Bill did not immediately grant them a place in the company. “He [Bill] wouldn’t let us in the business until we had worked elsewhere – he wanted us to make our mistakes elsewhere,” said Tim Mackay. They said succession has been a key focus for the family and they have “everything in writing” in regard to future ownership. However, they regularly revisit the plan to ensure their goals remain aligned. The siblings commented that they didn’t want a succession plan that “relied on an 11 year old to run the company,” recognising that the third generation may not be inclined to take on the business. “It is about embracing the legacy – but taking it forward,” they agreed. About the Author - Dominic Pelligana is a Partner with KPMG Australia and a member of thefamily business team. This article was first published on their website and eproduced with their permission.

Did you know that less than 3% of family-owned businesses make it to the fourth generation? As a fourth-generation, family-owned business, Warwick Publishing are proud to say they’re part of that 3%. But now they’ve actually made it to the fifth as one of their newest employees, and the fifth generation in the Warwick family business is Alex Paschal. But first, the family history. Before we fully introduce you to Alex, first we’d like to give you a brief run-down on the family lineage. First up is Lina Paschal. Lina purchased the company, which was a newspaper publisher (The Valley Chronicle), from her brother-in law, Albert Hall, in 1903. In 1926, Lina stepped down and her nephew, Paul Paschal, took over. It was under Paul’s leadership that the company started producing calendars with logos as a means of using the presses when not printing papers. It was also during this time, in 1926, when they officially became Warwick Publishing Company. At the end of WWII, Don and John Paschal took the reins of the company. Between 1977 and 1999, Rob and Jim Paschal (Don’s sons) purchased the company. The original newspaper operation was sold in 1989, at which time the business focused fully on promotional products. Which brings us nicely to the next generation, the fifth generation, Alex. And trust us when we say Alex worked hard to get to where he is with the family business. Not just handed to him: what it took for Alex to prove his worth. Alex graduated from the University of Dayton (Dayton, OH) with a bachelor’s degree in Chemical Engineering and a minor in Business Administration. He then continued on at Dayton to receive his master’s degree in Business Administration shortly thereafter. During graduate school, Alex was part of a teaching team in the chemical engineering department. His major role was to help out with the senior capstone lab courses, with a specific focus on safety, proper experimental techniques, and analytical methods. As a minor role, Alex also helped students grapple technical skills in coding courses and financial skills in the senior capstone. Though this experience was not directly related to managing a business, Alex believes his experience gained from teaching safety education directly translates to maintaining safe working conditions in our plant and office. His graduate capstone was an integrated project with a local Dayton-area business, in which he and his peers spent a semester acting as a consulting group that developed an action plan for the owner as the final deliverable. Of the project, Alex says, “It was both an incredible and intense experience that taught me how to strategically plan businesses for the future without it being distilled by a classroom setting.” Professional development and learning the ropes. Though Alex officially joined the team full-time in January of 2020, that wasn’t the first time he’d worked in the family business. Throughout college, he had been working part-time, learning the ropes in as many departments as he could, including HR, die-cutting and foil stamping, as well as operating the digital presses. Throughout college, Alex attended various leadership seminars through the National Society of Leadership and Success, as well as a University of Dayton Entrepreneurial Summit called “Flyer Formation.” Between January and June of 2020, he started and finished the PPAI online education, resulting in earning an MAS (Master Advertising Specialist) certification. As Alex himself recognises, “Warwick has always been a constant in my life. Whether I was working part-time during summers or just stopping by to visit, there really hasn’t been much of a time where I haven’t been involved with the company. Being the only fifth generation member is certainly daunting, but I’m excited to finally get involved in my family’s business on a more permanent basis, especially during this crazy time we’re living through.” And, of course, we can’t leave you without a word from co-owner—and Alex’s father— fourth generation family member Rob Paschal. “Alex has a lot on his plate right now—especially given the current global environment,” says Rob, “but he has the drive, the initiative, and the passion to help us continue to grow this company.” Find out more on their website here

As part of the Stewardship Principles for Family Businesses campaign, Stewardship Asia interviewed Mr Zengoro Hoshi, the 46th generation owner of Hoshi Ryokan to uncover the insights, values and stories behind this 1300 year old family-owned inn. See the interview and appreciate the values and the heritage behind one of the oldest family businesses in the world.

Creed boasts an unbroken line of perfumers: father-to-son, descending and developing through seven generations. Creed is the quintessential family business. The Creeds have the unique genetic heritage of a discerning nose for scent – a centuries’ long passion for perfume. This gives the House an authenticity beyond price. This unique story began in 1760 when a pair of scented leather gloves was delivered to King George III by a new London tailoring company. Founded by James Henry Creed in the same year as the young King’s accession, the House of Creed has created fragrances for the discerning and the discriminating for over 260 years. Queen Victoria, George III’s granddaughter, appointed Creed as an official supplier to the Royal Household. Then, in 1854, under the patronage of Napoleon III and his Empress, Eugénie, the stylish leader of European fashion, the House of Creed moved its headquarters to Paris. Victoria had praised Creed only too well to her fellow Sovereigns. In newly rebuilt and glittering Second Empire Paris, Creed embellished its reputation for impeccable tailoring and for the exclusivity of its rare and limited House fragrances. The tact and discretion with which a royal, aristocratic and socially prominent clientele were handled rapidly became part of the Creed legend. Creed has created a legacy of unrivalled scents treasured by perfume connoisseurs and all admirers of quality, style and panache. Over the centuries, the Creed family has produced over 200 perfumes all testifying to a unique creative spirit that has been passed, together with a keen inherited nose, from father to son through seven generations. Today Olivier Creed, ‘Créateur Parfumeur’ and direct descendant of James Henry Creed, continues this great tradition. Accompanied by his son Erwin, Olivier travels extensively to source, research, inspect and commission the finest materials. Rose from Bulgaria, Turkey & Morocco; Italian jasmine; Florentine iris; tuberose from India; Haitian vetiver; Bourbon vanilla; Calabrian bergamot and Parma violets. These are just a few of innumerable treasures in the Creed laboratory. They are all ingredients which have been used in haute parfumerie for many centuries, even millenia. Still based in Paris, with a factory at Fontainebleau, Creed manufactures many of its own essences using a traditional infusion technique which enables Creed to maintain the superior quality and authenticity of its fragrances. The process is intricate and incredibly meticulous but Creed is driven by artistry and perfection. A timeless, modern act of creation: perfume of the past, fragrance of the future. Find out more at www.creedfragrances.co.uk

Family business practitioners see the investigation of differentness family to family and detail to detail as the heart of today’s practice. When it comes to family business there is no “identikit.” No off the shelf package will sort out the identikit governance and succession problems of your family business clients. Each family differs down to your last incisive question that uncovers the particularity at the root of its challenges. David Harvey explains more. Family business practitioners see the investigation of differentness family to family and detail to detail as the heart of today’s practice and this requires new techniques and competencies. Your practice needs not just core accounting but also access to coaching, psychological, management, family law, wealth management, mediation and counselling skills to provide a tailored governance solution focused on the dynamic of each family. There is an alternative; you may be the adviser whose prognoses required the engagement of a more expensive adviser to undo the damage. The Family Dynamic A client review for a new family client seldom goes beyond the business fundamentals. Yet in family businesses there is no decision untouched by the chemistry of family – the big things in life – the family ethos, myths and history, passions, duties, friendships, values, convictions and personalities. Family businesses are shaped by families and so should that new client review be. The best of the men (and women) of affairs at the shoulder of business patriarchs and matriarchs have always known that the feud between two arms of the family may be about business outside but childhood jealousies and rivalries inside. “Our parents sent you to INSEAD and brought you back to run half the business – I learned top to bottom”, as a second son put it to me, will perhaps shape family dynamics for 50 years. Taken this way contract terms and discounted cash flows can become lesser considerations than narcissism and ego. Do you feel capable of discovering and negotiating with these issues? Can You Enlist Someone Who Can? Over the last 25 years family owners and advisers are more willing to face, discuss and learn from family truths and to consider family and business together to shape their responsibilities and responses to both. Yet even in economies such as India where the importance of family business is recognised, the recognition of family/business interaction is merely dawning. The right answers, competencies and networks are still a question mark for many advisers. A Little Knowledge Is Dangerous And so is the temptation to offer packaged solutions, where family or advisers read an article like this, or pick up a book and call for an off the shelf family constitution, family office or family Council as a magic bullet to solve problems. This misses the point. Without deep family introspection, discussion and the building of trust and communication empty structures achieve nothing. Yes, handling issues of family business governance and succession does require a tool kit of structures. It needs good knowledge of the application of trusts, international law, family law, foundations and tax. Most of all it requires knowledge of the interaction of the technical and the personal; the latter being the trained capacity to coach and mentor family business members by asking the right questions that bring families to communicate honestly and constructively about the future. The Indian Family Business Environment Worldwide the picture is partial, but “in Asia in general, no comprehensive picture is still clear on most aspects of family business” (K. Ramachandran – Indian Family Business: Their survival beyond three generations – Indian School of Business Working paper series 2005). Yet some 71% of listed Indian capital is family owned and that suggests that an even larger proportions of private business is too (S. Chakrawertti, Families aren’t such a bad deal, Commentators worldwide agree that family commitment to the long term, to family members and to community is a great strength often building greater profitability. Equally whilst little is known about survival rates for Indian family business, commentators agree that, everywhere they carry the seeds of their own destruction. The old saying “shirt sleeves to shirt sleeves in 3 generations” has much truth to it, perhaps 5% survive to the 4th generation. Crises of succession terminate many enterprises; the wrong heir; fighting heirs; unprepared heirs; heirs who did not want to inherit but wanted to be anything else; founders who die without any plan and leave heirs clueless about the business; founders who retire in name and within 18 months come back. In today’s India, with a more open and competitive economy even a shared decision between the generations can be fatal as markets change. Equally, validly many families decide rationally that the business is no longer for them and sell to everyone’s benefit. The worldwide GLOBE model study of societies (GLOBE Study of 62 Societies, Sage, 2004) was applied to south Asia as one of ten family business cultures. This work assesses the nature of family involvement in the business, provides pointers for the adviser and owner assessing their situation and so suggests culture specific issues and methods for structuring, managing and advancing family involvement (Culturally Sensitive Models of Family Business in Southern Asia – Gupta, Levenberg, Moore, Motwani and Schwarz, ICFAI University Press, Hyderabad 2008). The GLOBE data highlight particular governance and succession circumstances in India. A foremost feature is the joint concern for the wealth and welfare of the family, often expressed in the Karta system. As yet, though, there is little formalisation of this characteristic in governance save in the larger Indian dynasties. Jay Hughes’s book Family Wealth: Keeping It in the Family” is a useful introduction to that formality (Bloomberg 2004) as an inspiring tool kit for the advancement of family business and wealth. For Hughes wealth is not money but the developing aims of the family and the emotional and intellectual capital shared between them over decades, which will include stewarding and building wealth but also the personal aspirations of individuals and the family. If families can use their human and intellectual capital to their fuller potential, then the business has a vastly better chance of surviving – and growing. Hughes’s proposed and other governance structures are gaining familiarity: family meetings, facilitated for the honest discussion of difficult and substantial issues a family constitution of rules governing how business and family interact, including a framework for employment and recruitment into the business, the role of outsiders and the structure of ownership and succession succession plans to structure the change in generation creating a family’s mission statement structure for reporting the family’s human and intellectual capital on the Family Balance Sheet and a Family Income Statement – for instance accounted for in a family balanced scorecard clear definitions of roles and responsibilities the development of a family office as a centre of management for the family rules covering marriage, nuptial agreements and divorce and the impact on ownership; increasingly significant as families globalise These structures are only a means to and end; it is the work that families do together to create them through effective communication, mutual understanding and respectful agreement on the future that matters. Have family members worked hard? Are family members just signing a piece of paper or will they really commit? If the former then the family will need one lawyer to design a structure and a more expensive one to get them out of it. The second major feature of the GLOBE study points to the better educated next generation Indian family members offering challenges as well as opportunities. They want faster change, will draw in many more experiences and influences, will have often worked elsewhere and are unlikely to want to wait. They may drive profitability and expansion. Equally, tensions between generations may cause severe damage. Ramachandran suggests that the success of the few 4th generation Indian families is founded on focus on long term family wealth that averts green field risk, but diversifies and experiments with caution. The process of bringing the next generation into the business should take years, with a careful education emphasising responsibility and choices for the next generation and respect and recognition for the older one. Research by Professor John Van Reenan (Keeping family-owned firms family-run from one generation to the next can be bad for business, Bloom, Nick and Sadun, Raffaella and Van Reenen, John LSE2011) demonstrates that succession selection should be on merit, not primogeniture otherwise poorer performance is a norm. Today India’s business families have a greater global presence. To best support them as families short courses, articles and books (for instance Ivan Lansberg’s Succeeding Generations or Randel Carlock’s Strategic Planning for the Family Business) are a useful introduction. There is now a much wider access to family business professional development. Advising families in business on governance and succession is as specialist as taxation, treasury or forensic accounting. Gaining the necessary competencies should be taken as seriously by any firm wishing to increase the wealth of family clients. Skills gained, in the family business advisory discipline, nothing beats practice to analyse and support the individual circumstances of each family. Remember where we came in, no family business is identical. Reproduced with permission of the Society of Trust and Estate Practitioners www.step.org

Martin and Tracy Hamilton are the owners of Mash Direct, a family-owned farming and food production enterprise launched in 2004 in County Down, Northern Ireland. With six generations of farming expertise, Mash Direct provides quick-serve vegetable and potato dishes to local and UK markets. In this video they discuss how they run their family business along with their sons Lance and Jack, sharing their insights into how they combine their individual skills to create an award-winning business.

There comes a time when most families seek to sell their business, whether it be five years after its creation or two hundred years. The main reasons for the sale of a family business are usually retirement and/or lack of succession, but sometimes a strategic buyer makes an approach and the family is simply tempted to cash in. So, even if there is no immediate plan to sell, it’s usually in the family’s best interest to have the business in a sale-ready state at all times. How the family operates the business has a major impact on its saleability and ultimately its value of sale. Here, Natalie Wright , Head of Family Business at Mazars shares ten tips that will help achieve maximum value as well as a smoother process: Keep your customer base as broad as you can. Concentration amongst only a few customers increases risk and damages value. Consider your customers and customer relationships carefully and lock them in contractually. Long terms relationships with customers, enhanced further by forward visibility through contractual tie-in, gives buyers confidence that they will continue to buy from you. This adds to value. A churning customer base or a need to continually win new customers is a devaluing factor. Ensure that there are others in the business that are involved in the key customer relationships and general activity within the business. A buyer will want to see a sustainable business that can continue to operate once the family exits. If not, they are likely to tie you to the business longer term and will want to pay for the business over time rather than in cash up front. Lock your key people into the business. Whether you sell or not, these are of high value to you. Share schemes are a great way of doing this and incentivises the employee to help you grow the business. An EMI (Enterprise Management Incentive) share scheme is HMRC approved, is attractive to employees and is very tax efficient for the employee and the business. Manage your working capital carefully. Too much cash tied up in stock and debtors can be unattractive to a buyer and seldom adds to value. Cash sat in the bank definitely adds to the value. Take tax advice on the ownership structure of the business. Although rules changed recently, Entrepreneurs Relief still exists. Better to be taxed at 10% on the sale than 20% if you are able to. Leave it too late and you miss the opportunity. There is also pre-sale planning that may only be available to you if you action it before the transaction and where you have a sizeable legacy, it is important to protect it. Ensure that you prepare good quality financial information at all times. A buyer will expect to see this. Make it easy for them and keep it updated. Speak to others that have gone through a sale process to understand how the process worked for them and what they would have done differently with their business if they had the opportunity. It’s important to go into this with your eyes open and to maximise the opportunities and limit the risk. Think through the cash needs for you and your family for the future – get a personal cashflow forecast. Can you afford to sell now? What price would you need to get for the business to make it work for you and is your business worth that? Knowing your number can help once you get into negotiations as you can have peace of mind in knowing what you need to meet all of your objectives. Keep your premises clean and tidy. First impressions count. It is amazing what difference a coat of paint can make to the appeal of a business to a buyer. So, even if a sale is not on your agenda right now, it pays to be ready and to know the options. The above are good business practices anyway and you never know when someone will come knocking on your door. It is usually when you least expect it.

Family businesses benefit by leveraging knowledgeable senior family leaders with innovative members of the next generation. Research shows that family business protégés — the incoming younger generation — report being most satisfied with mentors who were “still directly involved and active in their family companies rather than retired.” Those same protégés wanted a mentor who seemed invested and interested in their personal development. Mentoring is a critical issue for sustaining a multi-generational family business. Guidance has to be given to younger, less experienced workers. More importantly, the next generation of leaders needs to learn what it means to run a business, juggle employee personalities, and make difficult decisions. Fortunately, many family businesses already have the resources to solve this problem themselves. If a family business stays around long enough it is going to have seasoned members who become less active (on one hand), and it is going to have younger members who are more innovative and tech savvy (on the other). For senior members in particular, this mentor-protégé model creates a dignified process of passing the torch from one generation to the next. Leveraged the right way, these two groups can partner up to improve the chances that a family business survives for years to come. The Co-Mentoring Model Pairing an old industry veteran with an upcoming practitioner pre-dates modern businesses. Feudal systems relied on a master and apprentice to keep trade secrets alive over many generations. Today’s co-mentoring model improves on the traditional model, thanks to advances in the understanding of human psychology. Co-mentoring uses the gifts, talents, and understanding of both mentor and protégé. Instead of a rigid, hierarchical relationship between master and apprentice, each is co-mentor to the other. Seasoned family members stay active and can counsel the young about business practices and professionalism, as well as pitfalls to avoid. Younger family members receive crucial advice while bringing new ideas and innovative processes to their elders. Family And Tradition If you investigate successful family businesses, one recurring theme you’ll encounter is a sense of pride and understanding of family values. With the help of a co-mentoring process, older family members can impart that pride and understanding to the next generation. When McKinsey & Company published ‘The five attributes of enduring family businesses’, it noted that multi-generational businesses “make sure to permeate their ethos of ownership with a strong sense of purpose.” In other words, they deliberately build structures and processes to transmit important family values. Finding The Right Mentor And Protégé The most successful businesses tend to handle relationships more effectively. This is no secret. In this circumstance, that means pairing the right mentor(s) with the right protégé(s) to achieve the maximum results. Mentors don’t have to be family members per se. Neither do innovative protégés. But it tends to be the case that family members occupy both spots, especially for smaller or newer family businesses. Barbara Weitman, who has authored more than half a dozen books on small business planning, cautions against founding parents serving as direct mentors to their children. In her J.K. Lasser’s Finance & Tax for Your Family Business, Weitman writes that sometimes “mentoring is better left to non-family members” because young workers may take family instruction as criticism or judgment, even when it isn’t intended that way. This is sometimes true. Parents remain parents no matter the age of the children. But it’s also true that parents are biologically designed to help their children become more successful. What’s right for one family business isn’t necessarily right for another, and sometimes parents make the best mentors. It’s impossible to tell each family business which individual mentor best pairs with which younger family member, but I know the most successful businesses will tend to figure it out for themselves. Ripple Effects Perhaps the most significant by-product of a robust mentor-protégé system is better succession planning. We know that open communication is key to engaging the next generation, but it’s also key when it’s time to choose the next leader. A good mentor-protégé system encourages trust and honest dealings between generations, and Lord knows succession planning is easier when the kids get along better with Mom & Dad. Between 65 and 75 per cent of family-owned businesses fail or are sold before the second generation gets a chance to take over, depending on the country. No matter where you look, the failure rate reaches 90 per cent before a third generation takes over. Good mentoring is one more levee against that tidal wave of failure.

Finding a family successor is one of the greatest challenges for family firms but when done correctly, it will deliver value for the company over and above any other strategy. For all family firms there comes a point when the founder has to retire. The family has to then decide whether to keep the firm family-owned and family-managed. When there are strong assets (the unique contributions that only families can bring to the firms) underpinned by efficient governance structures, a family succession is the right path to take. But how to ensure the path ahead is clear for the chosen successor? My book “The Family Business Map” co-authored with Joseph P.H. Fan, identifies a number of challenges that families and businesses across the world face during a succession process. These include cultural issues, the transferral of family assets and competency. The first three are: The challenge of succession culture The challenge of transferring family assets The challenge of being competent When Culture Matters It would be unrealistic to believe that the culture of any given country doesn’t affect the succession planning of family firms. In fact, this is probably the strongest influence over the firm’s decisions in this process. A succession model which works successfully for, say, a 40-year-old US family business couldn’t easily be applied to a Chinese Confucian-based family firm in Malaysia where the sons would typically inherit the lion’s share. To take a very different example, consider the case of Chief Abiola of Nigeria, the country’s most influential entrepreneur since independence, who lost his entire business empire leaving his more than 40 children with nothing to inherit — in large part due to the lack of an established culture of transferring wealth from generation to generation in Nigeria. In contrast, in the Middle East, firms are to a large extent governed by Sharia law which dictates certain protocols that have to be respected and in Thailand and India, for example, children rarely go against their parents’ wishes. No one culture is easier than another and the families simply have to work around the cultural reality that the firm and the family live in. Transferring The Family Assets Powerful family assets are the pillars upholding family business strategies and it is their transfer from one generation to the next which lies behind the success of every family firm. Whether the assets are in the form of the firm’s heritage, powerful business networks or core values, the key is to find common ground between the generations. The assets are typically transferred through an apprenticeship model where the younger generation are exposed to the family firm from an early age and are taught everything about the firm over a long time frame. In addition to providing the younger generation with a strong platform from which to take over, this model also prepares the older generation to let go. This model works successfully for firms across the globe. The Mulliez family stands out in France’s business landscape for successfully transferring their values. The family’s business stable includes the retail distribution groups: Auchan, E. Leclerc, Decathlon, Flunch and Leroy Merlin,all grown from the founder’s textile manufacturing business, Phildar. In 2011, the family could count 780 direct descendants, 70 percent of whom belong to the family association which controls the business interests. Their family motto, “tous dans tout” (everyone in everything), reflects the core values of solidarity, family heritage and responsibility towards future generations. With a large pool of talent and a strong entrepreneurial spirit among family members, the Mulliez family is a role model for families in business around the world. While the apprenticeship model is successful at transferring family assets, it doesn’t prepare the younger generation particularly well for changes in the business and the economic environment, nor does it facilitate a change in business strategies. A particular challenge among Asian family firms is the third generation who went abroad to study and returned with a mix of old Asian and Western values. This is a recent phenomenon which is expected to become more prevalent given the globalised world we inhabit. The Measurable CV The succession decision will involve many questions for both the older generation and the younger generation alike. For cultures where it is expected that several members of the younger generation will take over the ownership and management of the family firm, answers should be sought to: How to choose between equally able children? Will they make good business leaders or will the company suffer under their leadership? Will the heirs collaborate in the future – do their personalities blend well – or descend into sibling rivalry? How do we nurture the competencies necessary to take the firm forward? And how shall we support others who wish to pursue a career outside the company? Family firms are typically founded by entrepreneurial creative people who build the company on hard work and experience, without necessarily having formal training. Thirty years down the line when the succession question arises, the company is no longer the same entity it was when it was founded. The workforce will have increased and new markets might start to look attractive. For that reason, it is valuable for the younger generation to gain experience outside the firm — whether this involves going to business school or having job, board or CEO experience elsewhere — which can then benefit the family business when they return later. The De Kuyper family succession process is one example of a very formalised approach to finding the right successor for the family business which I have written about in a previous article. My research has shown that a combination of the apprenticeship model and education/experience outside the family firm is the ideal path to take. Succession planning typically takes ten to thirty years to complete and is best done when communication is transparent and shared among family members so that everyone can envision the path ahead. For family firms with strong family assets and few roadblocks, a family succession is the surest road to success. Morten Bennedsen is the André and Rosalie Hoffmann Chaired Professor of Family Enterprise at INSEAD and Academic Director of the Wendel International Centre for Family Enterprise. He is a contributing faculty member to the INSEAD Corporate Governance Centre and is co-author of the book The Family Business Map: Assets and Roadblocks in Long-Term Planning (Palgrave Macmillan 2014). This article was first published on the INSEAD website and has been reproduced with permission.

India has a rich and magnificent history of family businesses. The country’s rich history and culture have molded the edifice and character of family businesses over the years. Yashodhara Basuthakur and Dr Nupur Pavan Bang from the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business explain more. The joint family system was the backbone of these businesses and provided the required resources and capital for the cohesion and growth of the firms. In the early eighteenth century, India was predominantly an agrarian economy, with a deep-rooted caste-based social system that defined the occupational choices of the communities. Agriculture was the primary source of income and livelihood. The manufacturing industries were few and mostly in textiles, handicrafts. But India was lagging in the development of the economic, political, and commercial infrastructure essential for trade pursuits. The turn of the eighteenth century marked the transition from mercantile capitalism to industrial capitalism. The colonial rule led to the decline of the vibrant Indian merchant community. The Indian businesses faced discrimination in trade, policy and bank loans. During the Industrial Revolution in 1850, India became the supplier of raw materials and a market for the products of the British factories (cotton, iron and steel, chemicals, etc.). Some of the businessmen who emerged during this time were the Birlas, Kasturbhai Lalbhai, Walchands and the Tatas. They constantly criticised economic racism and created bodies of commerce and trade associations to lobby for the Indian companies. They invested in research and development and introduced new product lines. The Indian led business enterprises had expanded in scope and scale across the country by the end of the 1940’s when India gained Independence. The Indian family businesses also actively engaged in social causes and philanthropy through generous contributions to charitable trusts and other institutions driven by the cultural and religious traditions of “daan” (giving) as a sense of duty to the community. They played a pivotal role in institutional building by partaking philanthropic activities such as setting up premier educational institutes, research, and cultural centres for the progress of the country. The post-independence period marked with communal unrest was not very conducive for business. Additionally, the new Industrial Policy (1948) of free India was introduced which saw increased participation of the government in economic affairs. The large-scale nationalisation and government monopoly of critical industries such as utilities, transportation, iron and steel, heavy industries, armaments, atomic energy, manufacturing curbed the freedom of operations of the private enterprises. The Monopolies and Restrictive Trade Practices Act, 1969, put severe bottlenecks with respect to the quantities and types of goods or services that could be produced by the private sector. The firms now had to obtain licenses or permits to expand or start new businesses. Because of the limited licenses and capacity constraints, firms focused on diversifying into areas wherever they could acquire the required licenses instead of building on their core competencies. Some of the multi-generational business houses focused on restructuring by consolidation and expansion within the new framework by acquiring overseas companies and expatriate houses to enter new industries. Other business houses acquired a significant number of licenses to thwart competition and block other firms from entering the space. Also, there was a new genre of technology-savvy entrepreneurs who were well-educated with degrees from abroad and joined their family business or started new ventures. Some of the legacy business groups even lend their expertise in areas like engineering, iron and steel (Tatas) and shipping (Walchands) to the newly formed government enterprises. However, this period also witnessed some of the older business families already in their third generation going through splits due to waning family ties. The families had not yet adopted professionalisation, and the dominant family coalition still controlled the ownership and management. The economic liberalisation in 1991 was a landmark decision which opened the economy and introduced several macroeconomic and structural reforms. These reforms brought in a gamut of opportunities and challenges for the family businesses. While the businesses now had to compete with foreign multinationals and new entrepreneurial organisations for capital and resources, but they could now enter sectors which were earlier exclusively reserved for the public sector. The family firms were quick to restructure and respond to environmental changes. Some of the multi-generational businesses were able to weather the turn and came out triumphant in the new economy, while others who couldn’t sustain disappeared from the thriving business scenario. This era also witnessed the dawn of a new set of stand-alone first-generation family firms who harnessed the information-led economy by investing in research and technology. A study on Indian family firms by Bang, Ray and Ramachandran (2017) looks at the listed firms during the period from 1990 – 2015. The study categorises the firms based on ownership and management into two categories, namely family business group firms (FBGF) and stand-alone family firms (SFF) . According to the study, ninety-one percent of the listed firms are family-firms, which is a key driver of the Indian economy. In the year 2015, the top 30 family firms contributed to almost 50 percent of the total revenue of all listed family firms, which translated to 13 percent contribution to the GDP of India. Overall, listed family firms contributed to 26 percent of the GDP (Total Income). Out of the listed family firms, the FBGF’s contributed to 21 percent, and the SFF’s contributed 5 percent to the nation’s GDP. The family firms contributed to 28 percent of indirect taxes and 18 percent of direct corporate taxes collected by the government exchequer. The family-firms built more assets in the manufacturing sector, which has a long-standing impact across all industries. The SFF’s were predominantly in the services industry, owned and managed by the founder (or first-generation). The SFF’s played a critical role in the rapid development of the services sector and generated large-scale wealth and employment opportunities. During the post-liberalisation period, there was increased participation in equity markets by the family firms to meet the financing needs for expansion and growth. Among the listed family firms, the firms incorporated before the 1980’s were more likely to create business groups as a response to the macroeconomic conditions. The average age of the listed FBGF’s in the sample is 38.44 years, whereas that of SFF’s is 28.73 years. The family firms have displayed resilience, character, and adaptability over their long history and played a pivotal role in India’s growth story. However, with the current shifts in the economy and society, there are major challenges that family businesses must surmount. The family firms at the crossroads of succession have to take the decision on either to transition to next-generation or professionalise by inducting non-family managers. The family firms have to adhere to stricter and transparent corporate governance guidelines, better leadership and connect with the community to continue to chart the success story in years to come and ensure the perpetuity of the business and family. The authors are Yashodhara Basuthakur and Dr Nupur Pavan Bangfrom the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business.

In turbulent times there is a clear need for “white space” – that is, quality time for reflection with a trusted neutral person. Greg McCann explains more. Even before COVID-19 rocked our world, family enterprise leaders have had the challenge of navigating today’s rapid pace of change, global interdependence and complexity. They’ve also had to adjust to the fact that the average family enterprise now consists not of one but of five or more businesses. Add in all the other challenges of running a family enterprise, and it’s no surprise that one thing every leader I have worked with other the past 20 years has agreed on is the need for “white space” – that is, quality time for reflection with a trusted neutral person. Those who get this through leadership coaching find it leads to a direct increase in their capacity and agility as a leader, which helps them meet the challenges family enterprise leaders face today—and will almost certainly increasingly face in the years ahead. So, how exactly do these qualities of capacity and agility benefit you as a leader? What does a leadership coach do to develop them? And, what should you look for in a coach? The benefits of developing your capacity and agility Developing your capacity means becoming better able to think on different levels—to identify whether any given problem is a problem to solve, a system issue in need of a strategic solution, or a culture issue to influence. It also benefits you by deepening your self-awareness—so you know your strengths, weaknesses and blind spots, which helps you relate more effectively with others. It also increases your empathy for others, which research on emotional and social intelligence has shown is a significant benefit to business leaders. Agility is about being able to choose the right style or approach for a given situation or relationship. In short, developing your capacity gives you a greater number of effective ways to think and act, and agility helps you choose the right one for each situation. Together, they help you become a better leader; and with many family enterprises over-managed and under-led today, that gives you a powerful advantage. What A Leadership Coach Does A leadership coach creates the framework for all this work to occur. For example, I often spend a day with new clients and then arrange for three one-hour calls per month. This framework is designed to allow the time for leaders to pause, reflect, and process challenges, opportunities, patterns and even choices they may or may not be conscious they are making in the hustle and bustle of business. It is also allows leaders time to process big ideas—such as, considerations about changing your enterprise or your family—with someone who is neutral, which can be hard to find among your family members. Coaches are also more focused on helping you explore your own good ideas than on giving you advice—recognising that giving someone advice robs them of developing their capacity as a leader. They start with the belief that the client has the answer, and it is the coach’s role to facilitate the exploration of those options with questions, objective feedback, a re-framing issues, and an offering of stretch goals. In other words, a good coach views each discussion as less about solving some immediate issue (say, a sibling conflict) and more about helping you develop your overall capacity (for example, recognise your communication patterns, which may or may not serve you in the current and other situations). What To Look For In A Coach Trust is vital. You need to ask yourself: Can I trust this person to have my well-being and development as of primary importance? Trust, in turn, rests on competence and character. Is the person you are considering as a coach competent at what they do? Do they have experience and training as a coach? Expertise in your industry may not be necessary but understanding the nature of a family enterprise is. As for the coach’s character, it helps to ask yourself if you respect him or her as a person and a professional. Do you think they can support you, push you when necessary, and have the fortitude to go deep when necessary? As someone who has both had coaches and been a coach for two decades, I can say that it is one of the best investments you can make in your leadership development.

A family business that has made it to the 3rd generation has already beat the odds. Approximately only 12% of family businesses will ever make it to this point. Making it to the 4th generation proves to be even harder with only 4% ever getting there . There are some key inter-generational conflicts that make transitioning the business to the next generation and working with another generation family member even harder. We all know working with any family member can be a challenge, but working with one that has very different goals and expectations stemming from a generational gap can be difficult to manage and understand. Danielle Walsh explains some of these inter-generational conflicts that include: Differing work ethics: The founding and 2nd generation often worked very long hours. The founding generation is likely to have spent more time working in the business then at home, the same can often be said about the 2nd generation. The 3rd generation tends to value work-life balance and looks to automate or find efficiencies to ensure they can find time for family. This is also very different from the 1st generation since back then there was often a stay-at-home parent. Now days, it is the norm to find two working parents, which means both parents need to have some flexibility with work. This differing work ethic can sometimes lead to conflict between the generations due to a lack of understanding and a significant change that can be hard for the older generations to deal with. Communication: The founding generation and 2nd generation of many family businesses are famous for being poor communicators. I have often heard “No, I haven’t told anyone else – they should just know.” The 3rd generation tends to be much more transparent and willing to take the time to communicate with family members. Keep in mind, however, that the way the 3rd generation communicates often frustrates the 1st and 2nd generation. Emails and text messages instead of phone calls or face-to-face. This change has had a major impact on how families communicate and for the older generations it can be difficult to adapt. This sometimes leads to communication significantly slowing down or even stopping between the generations, which can leads to serious issues for the business. Being aware of the method that an individual prefers to use to communicate can certainly help bridge the communication gap. The 3rd generation needs to be aware that just because they sent an email about it, doesn’t necessarily mean it has been clearly communicated to all. Differing priorities: This ties in with the differing work ethic above. The 3rd generation tends to prioritise work-life balance and family. This can be very different from what the founding and second generation have done, which can lead to conflict. In my experience, the 2nd generation is often frustrated by what they perceive as a lack of commitment to the business by the 3rd generation. The 3rd generation is often frustrated by the demand on their time. Clear expectations need to be outlined so that all members of the family irrespective of the generation know what is expected of them and what they can expect from the business. Business priorities also tend to differ. The 3rd generation often prioritises innovation, change, and the use of technology which can be difficult for the 2nd generation to support. This is an issue that is becoming more and more common in family businesses and particularly in the jewellery industry. Therefore, we will further explore this issue below. Innovation & Change I don’t think we should be too surprised that the 3rd generation often find that they struggle to get their current owners (the 2nd generation ownership group) to endorse change and allow them to implement new and innovative strategies for their jewellery operations/stores. It just might happen to be due to one of the more common outcomes of inter-generational ownership. It is well known and documented that 1st generation family business owners are very entrepreneurial, which by definition means they are innovators, risk takers and typically passionate about both the industry they are in and their business. They tend to dedicate all of their time to building the business which in turn fuels their continued passion for it. But the next generation, the 2nd generation, often join the family business while gen 1 is still at the helm with their primary role in the family business being one of managing what is already there. They become managers and focus on improving effectiveness and efficiencies (refining) of what the founders built. They typically do not have the same degree of passion as the founders which is to be expected since it is not their baby that they brought to the world but rather that of the founders. As Gen 2 move along their career paths in the family business they tend to become risk averse and less open to change. They view their role as gate keepers to what the founders have built and continue to build. They tend to rely on Gen 1 to continue to innovate, implement change and take risks. These same managerial traits then get to permeate their thinking once they become owners. Note: Of course, the above does not apply to all Gen 2 individuals but it does apply to many so in that regard it is worth addressing. Then along comes Gen 3 who are a whole new breed of individuals with very different expectations with respect to life balance and very different expectations with respect to the use of technology (change) as well as a keen desire for innovation since it surrounds them every day. Gen 3 tend to be quite comfortable with change even rapid change and they tend to view business risk as a necessary frame of mind for success. Clearly these Gen 3 traits will be in conflict with those of the Gen 2’s described above. As such, Gen 3’s often feel like they are being stalled in their desire to innovate, implement change and take calculated risks to grow the business and take it down new paths. We can see this in the desire of many 3rd generation family members to shift from brick and mortar stores to online stores. This change is not a small one. The 2nd generation that has continued the family legacy and often maintained the business in a very similar way as the founding generation may not be comfortable or used to taking major risks such as this one. Without taking this major risk, the business may not survive long-term. A major shift in business strategies, like going from a store to online, is one that often occurs only once the 3rd generation has become owners and have control. However, this may be too late. Ideally, this change occurs with the support of both generations meaning a wealth of experience and a united front. One of the major risks for the family business (other than the inability to survive) is that they may lose those entrepreneurial Gen 3’s who do not have the patience to wait for approval to implement their strategies and who feel passionate enough to go out on their own and often in the same business. So what can a family business do mitigate this risk? 1. Gen 2 needs to recognise that Gen 3 are different and that they want operational improvements now (versus later), they want a work-life balance that meets their expectations, they want to innovate and be current with respect to what technology can do to help meet all of these objectives. 2. Gen 2 need to accept that the differences between them and Gen 3 is nobody’s fault but more so an outcome of inter-generational transfer of power and ownership. 3. Gen 2 and Gen 3 should implement a management succession plan that will allow Gen 3 to prove their skills, decision-making, and ability to work together over time. Without a clear plan, the competent Gen 3’s are likely to leave. By implementing a management succession plan over a specific timeframe the Gen 3’s have the opportunity to prove themselves to the older generation. When this happens, Gen 2’s often feel more comfortable relinquishing managerial control but also tend to embrace the new ideas and changes put forth by the 3rd generation. 4. Gen 2 needs to realise that Gen 3 may manage and lead in a very different way. Often Gen 3’s will have a management team made-up of some family and some non-family managers. It is no longer just one person that will fill all the roles (like mom or dad did). 5. Strategic planning is very rarely completed by family businesses. If there are competent and knowledgeable Gen 3’s in management it can be of benefit to let the next generation (in this case Gen 3) do the strategic planning and then have them present it to the owners (Gen 2). This helps bring together the next generation, allows the next generation to gain the trust and respect of non-family managers and provides new and different insights on how to move forward. This doesn’t mean than Gen 2 has no say it just means we allow the next generation to put together the first draft of the plan. Allowing the 3rd generation to participate in this type of decision-making plays a big part in keeping them motivated and retaining them in the long-term. There is no magic solution to dealing with inter-generational differences – just know that all family businesses face these issues at some point. Being aware of these issues and accepting them are steps in the right direction. Learning to work with them will lead to greater success for the business and will help safeguard family harmony. By implementing a comprehensive family business succession plan you will increase the likelihood of transitioning to the next generation successfully and it will certainly help manage the inter-generational differences by clarifying what is expected (what is expected work in the family business, manage the family business, and own the family business). About the Author - Danielle Walsh is the founder and President of Walsh Family Business Advisory Services, a consulting firm that specialises in assisting family owned and operated businesses navigate the rough waters of management and ownership succession. Danielle is a Chartered Professional Accountant (CPA), Chartered Accountant (CA) and a member of the Family Firm Institute (FFI), an international association of family business professionals providing in depth information on family businesses from around the world as well as ongoing education and training in the field of family business consulting. Danielle has obtained the FFI Certificate in Family Business Advising and the FFI Certificate in Family Wealth Advising.