Many families will be familiar with the warning from history and experience: ‘clogs to clogs in three generations’. It exists in many forms, in many countries and through many ages. It should be a reminder of how few families manage the transition from generation to generation successfully. Survival statistics suggest only around 13% makes it to a third generation.*
Many family business owners remain keen or even determined to hand their businesses down to their younger family members, believing this to be the most effective way to preserve their family values. This may include retaining the vision of a more distant founder. In such a situation, all owning family members will have their shareholders’ responsibilities, and many will regard it as their duty to uphold the purpose of the company and any philanthropic or social capital role. Managing such a legacy is an evolving process, demanding of engagement and time. It also takes sensitivity and flexibility to educate the next generation with the right level of support, work experience and encouragement.
However, few believe in an automatic right of succession. The survey results make it clear that the right to succession requires both enthusiasm and merit. If there is no one within the family with the right blend of interest, skill and qualifications, the business may need to bring in external management. Some respondents do not want to place undue pressure on children to join the family business, and are more concerned with their children’s happiness and fulfilment.
Findings and insights
Engaging the next generation with the business
The automatic right of succession has become an archaic concept. Having worked hard to build a business, family business owners usually have little desire to hand their business to someone without the enthusiasm, skills or qualifications for the job, even if they are family.
When should the next generation receive some income from the business?
There was far less consensus about when the next generation should start to receive an income from the business. In general, most owners wanted to avoid a ‘trust fund trap’, whereby descendants received an income without having to work for it and agree that too much income could be demotivating.
When is the right time for the next generation to join the business?
The age at which respondents wanted their children to join the family business varied greatly, but the direction of travel is definitely towards it happening later. This may be a demographic shift, or the well-documented reluctance among entrepreneurs to relinquish a business they have dedicated their life to building.
Encouraging the next generation to be involved in the business
Almost 80% of family business owners believe it is either extremely important or quite important for family members to be involved in the business. That said, few want this to be a burden for future generations, and those involved must have the ‘heart and drive’ to persist.