As the clock ticks, family business players need to clarify their intentions.
Following the success of others is rarely a cakewalk. Meaningful engagement, by all involved, eases the path. Family Enterprise Canada recently took a temperature check on where the senior generation stand on their roles in leading Canadian family businesses, thousands of which will change hands in the next decade. Guiding our discussions were findings from two new research reports. The results were eye-opening.
Ready, Willing and Interested – or Not?, our first report analyzing the transition intentions of Canadian family business, yielded three key insights. One, the senior generation has doubts over NextGen readiness to take over the family business. Two, the number of family business owners who are prepared to transition ownership to outsiders is higher than expected. Three, more than 50% family businesses are likely to change hands within a decade.
Our second report, Who are the Guardians of Legacy?, again probed transition intentions – this time through the lens of younger generations’ preoccupations about their family enterprises, and their futures in or outside the business. We detected a strong family business spirit, or DNA, in NextGens regarding long-term family control.
Our conclusion? Senior Canadian family business leaders are not the sole guardians of family legacy. Senior leaders may have misgivings over NextGen readiness, yet their progeny are revealing themselves as more-than-willing builders of family enterprise legacy.
Two key questions arise. First, what does this mean in the grand scheme of future-proofing Canada’s family enterprises? Second, does each generation have a discrete identity as torch-bearers of family legacy, or are “missed conversations” creating a false gulf – misunderstandings that undermine family purpose and vision, and ultimately threaten enterprise longevity?
A case could be made that old and young cohorts are not on the same page. In fact, in many ways they are. Where a senior family leader might say: “I’m not seeing willingness from my next gens to join the business…” we ask:
- Have you fully engaged family members on their interest to take part in the business?
- Have you developed a governance process that introduces next gens to the business early on?
- Have you considered that the above is not just transition planning but also business planning?
Abacus Data Director Richard Jenkins says a closer read of the reports’ findings point to a need for greater skills development in family enterprises. “Only 30% of the (participants) told us they have family meetings.” That figure is higher in multigenerational businesses, which may reflect their sophistication. But he warns of a need to “close to the gap” between what each generation is thinking.
What are they thinking? Some refer to the “five-year rule” (a popular policy in which NextGens are advised to get work experience outside their family business before joining). “I had jobs before joining my family business, but nothing that directly translated,” a NextGen explains. “I wonder, if I’d spent a few more years in a private business, what that would have meant for my skillset and relationships.”
But as Family Enterprise Canada explains, there is a risk. “This exemplifies the management versus ownership divide. If your family owns a business, you can still be an owner and perhaps have another career.” This implies a need for a form of “active ownership” whereby family members firm up governance structures. “A lot of families have an allowance for that because they want to keep that ownership piece in the business.”
Some NextGens see tremendous value in external experience. One NextGen, who defines himself and his brother as entrepreneurial, recognizes his senior family members as “the entrepreneurs in the business.” He takes a pragmatic view of his role. “My training ground came from completely outside. For those of us who’ve had the ability to build a career and experiences outside, personally that would be my recommendation.”
Legacy counts. But, if the opinions of old guard are anything to go by, so does certainty. “In the first report, one of the big ‘ah-has!’ was that the owners’ biggest concerns were that the next generation isn’t ready,” Jenkins says. What puzzles him is that the findings also paint a picture of “family business spirit” embedded in the DNA of their owners and their offspring. “There is almost that gap between how positive people feel about the role family business plays but there is still that feeling that: ‘Wow, I am not sure they’re ready.’”
Regardless, young family business players want in. Some 89% of respondents aged 18 to 44 years old agreed that they think of the family business as a legacy to leave future generations. What’s surprising is that a quarter of the cohort age 45 and up do not think this way.
This is not necessarily bad news, particularly when we look at the willingness of family members to invest in NextGen businesses. No less than 96% of those aged 18 to 44 are very willing or somewhat willing to invest in their next generation’s business compared with 85% of those age 45 and up, which is encouraging in itself.
We’ve seen the benefits of intergenerational cooperation through shared ownership and the development of new business units via intrapreneurship. Thomas Clark, who developed Intraprise, a Family Enterprise Foundation incubator for entrepreneurs in family businesses, believes intrapreneurial programs enhance the sustainability of family enterprise ownership. “What we actually saw was that it almost becomes an alternative path to succession.”
Reacting to the study findings, a young family business leader was impressed that such a high number of NextGens want to start new businesses or take their enterprises in new directions. “The questions are: Have they initiated that process? Have they had the conversations with their NextGens? What part of the responsibility initiating would the older generation have?”
It could be how family members skills, interests or passions match up with what the family business does. We are in an era of opportunity, Clark notes. Families need to be on learning paths. There is a need for structured discussions that help families find purpose and map out how they will move forward.
There will be a lot of change in the next decade. Enterprising families need to be ready with structures, policies and guidelines in place to make sure that transitions processes are solid. Says Clark: “My suspicion is that it has not been attacked proactively, and that is why we are seeing some of the results we are seeing. Transition planning needs to include a next generation readiness component.”