ABOUT THE AUTHOR: Juliette Johnson is Head of
Family Business at Coutts & Co
Preparing the next generation for ownership and management is a
key task in any family business wishing to succeed and grow from
one generation to the next. Too often, however, families fail to
invest proper time and resource in preparing responsible family
owners and capable family managers. This is a recipe for failure
and can be the cause of great distress, both for the business and
those family members involved.
Opportunity or birthright?
The first question families need to answer is whether joining
the business is seen as an opportunity or a birthright. For most,
joining the business is seen as an opportunity and so entry needs
to be carefully considered. Families should start early to clarify
the qualities, educational requirements, work experience and
expectations for family members joining the business. As with
everything in a family business, having open discussions to create
clarity and manage expectations is essential: under what
circumstances can family members work in the company? Should they
work outside the family business first? How will their compensation
work? Who will they report to? What happens if they’re not up to
the job? What sort of support and feedback will be given? Too often
family members make assumptions about what involvement with the
family business will entail – if these assumptions are misaligned,
it is likely to be a source of conflict and strife further down the
line.
Outside experience
Experience outside the family business is invaluable for family
members that want to work in the business. This allows family
members an opportunity to prove themselves and join the business
with something to offer, not there just because their name is above
the door. Working in another business can give family members
confidence and an invaluable opportunity to work in an environment
where there are no other family members to support them; where they
can make mistakes and learn from them and where they can learn and
grow as individuals in their own right.
Formal policies
Once a suitable role has been found, putting in place formal
policies and a contract of employment can also help create clarity
and avoid assumptions being made, yet these are so often
overlooked. Clarifying guidelines around remuneration, holiday
entitlement, share options and other details can really help to
manage expectations. They can also help to deal with one of the
biggest challenges that face family businesses: removing a family
member who isn’t performing. A challenge under any circumstances,
it is much harder if the basis for the decision is completely
subjective. You can end up with the opinion of one family member
over another. Having clear targets and feedback mechanisms are
vital for dealing with somebody who isn’t performing early on.
Challenges
The next generation often faces particular challenges working
for the family business: sibling competition, parental
expectations, feelings of unworthiness, and family members are
often neglected when it comes to formal feedback or training. While
non-family employees in the business typically have an appraisal
once or twice a year and career development plans, family working
in the business tend to get overlooked here. To make matters worse,
family members working in the business become isolated, without
colleagues or peers to talk to; other employees often don’t really
know how to treat them.
On that basis, a well-considered support network and career
development programme is also essential for family members working
in the business, particularly if they are ultimately moving into
management positions or onto the board. Mentoring and coaching can
help support young family members in their development within the
family business and with career guidance and personal
development.
Responsible ownership
Whilst preparing the next generation for management often
affects a few family members, preparing a far wider group of
cousins or siblings for responsible ownership is a completely
different challenge.
Ownership development tends to be neglected in many family
businesses as owners often assume that the next generation somehow
naturally understands what it means to be a shareholder. This is
rarely the case and successful family businesses work hard to
educate each generation so that they understand the business and
have the necessary skills and are prepared to act as good owners at
the appropriate time.
If done correctly, responsible owners – a group of owners that
understands the business, can work together and speak with one
voice, and is committed and willing to support the business
financially – can be a source of competitive advantage and patient
capital for a family business. If the owners are divided in
conflict, with differing goals and aspirations, however, the
opposite is true.
There are two key tasks that families need to carry out to build
an educated, capable and responsible ownership group. First:
knowledge building. The next generation needs to learn about the
family business, its history, its values and vision, learn about
the rights and responsibilities of a shareholder, and a basic
understanding of the financial side of the business. Skills-based
learning is also essential. Here the focus is on decision making,
communication, managing differences of opinion and team building;
really getting family members to work together so they are able to
speak with one voice and understand each other better.
While the senior generation can provide initial impetus and
direction in developing these training programmes, ultimately the
next generation need to become actively involved in helping to
design their own learning journey.
Participation in the business and its extended activities can be
powerful glue drawing the family together. By involving the next
generation in the different activities of the business – be it
through a family council, a training programme or philanthropy –
families help build up the next generation’s commitment to the
business, help them learn about the business, and importantly,
build relationships with other family members.
This relationship building becomes much more important as the
business passes down the generations. By the time you get to the
third generation you may have a group of cousins, many of whom have
grown up in different households and are often more geographically
dispersed and don’t know each other as the previous generation may
have. They may have a very different view and vision of the family
business, so managing ownership becomes much more of challenge.
Working together
By working together to build and renew family values, articulate
and align their vision, the next generation can bond together and
grow into a cohesive ownership group. It needs to happen over a
period of time and you are often going to be dealing with different
ages and levels of knowledge. Succession is a process not an event.
It needs to be worked at, not taken for granted.