Passing the Torch: Navigating the Challenges of Family Business Succession
Second and third-generation family businesses are the backbone of the Asian economy. They make up about 60% of all businesses in the region. The founder’s dreams are that his hard work can be passed on and carried on to the next generation to bring more success and prosperity to the family.
However, there are many difficulties and challenges to face in order to carry out a successful transition in leadership. This process requires careful planning and execution to pass on the business to the next generation.
Challenges of Family Business Succession
As the founder or current owner approaches retirement, there are several challenges to be faced during a family business succession:
- Lack of preparation. This is one of the major shortcomings of a lot of successions. When there is not an adequate amount of preparation and there are assumptions and expectations from either party, this process can go wrong quickly as there is a lot of conflict and confusion.
- Generational differences. Family succession entails passing on the business from one generation to the next. This creates difficulties due to the clashes in values, goals, and expectations for the roles and the business. A significant part of the challenge is the older generation giving way and value to the new ideas from the younger generations.
- Family dynamics. Businesses, in general, are challenging to run. Family businesses have an extra layer of difficulty to them because they carry with them the dynamics of the relationships of the parties involved. These complex systems of relationships and rivalries can complicate the process.
- Cultural factors. A lot of the younger generations are being educated abroad, and with that comes cultural influences from the West, which can be a positive impact, but at the same time can create a lack of respect for the elders, which creates resentment and conflict.
Overcoming the Challenges
Despite the many challenges to be faced during this process, hope is not lost. Many steps can be taken to create a successful passing of the torch, which include:
- Start planning early. The succession process can start from an early age by involving the upcoming generation in the business as much as possible by bringing them to work, asking them to use critical thinking with problems that arise, and sharing success stories from the company. The more we share and involve them with the business, the more they will care about it.
- Be flexible. It really helps the process to keep an open mind, as well as open communication. There needs to be a willingness to adapt when things go differently than expected.
- Get professional help. Family succession, as we mentioned before, is a tricky business, and there is no expectation of having to do it alone. We get coaches to help us train our bodies. Why wouldn’t we get help to help us train ourselves and a new generation to prepare for such an important event?
Family business succession is a complex process that can be filled with challenges, yet by planning early and getting professional help you can increase your chances of a successful transition.
Tiara Hoquee
Psychologist and Emotional Intelligence Coach
The Importance of Preparing the Next Generation for the Family Business
Imagine a father and son sitting at opposite sides of a desk. On the one hand, the father has seen his business and boy grow in front of his eyes. He is proud of them both. Yet, how do you transition from being father and son to colleagues? He has taught right from wrong, said no, and led the way. How can he look at this boy as a man? As an equal?
Then, we have the son, trying to fill in his father’s shoes. There are many things to learn, like how respect must be earned and how the father's success has many lessons to be discovered. At the same time, he is eager to bring new ideas and his company vision. He wants to make changes and adjust to the future.
There are many challenges in passing a family business to the next generation. About 40% of family-owned companies transition into second-generation businesses, and approximately 13% are passed down successfully to a third generation. In comparison, 3% survive to a fourth or beyond.
What is causing this increasingly small number of successful family transitions? Many factors in play could hurt the chances of being able to pass on the business to the next generation. We’ll explore some of the main obstacles that get in the way.
Communication
Let’s tackle the most significant and most challenging of obstacles first. Research has taught us that it is the key to be able to have a successful transition of the family business. What are some communication problems that we can encounter?
- Lack of clarity. This can be seen as expectations of children taking over without clear communication of those expectations. When you assume, you fail to plan and prepare. This can lead to many more problems down the line.
- Lack of transparency. Many departments and components come into play for a business to run successfully. Children are not often exposed to the inner workings of the company. When their time comes, they feel out of place and out of touch with the business.
- Lack of direction. Not having a clear vision of what the company’s purpose can impact the transition. If they don’t know where they are going or why they are going there, it is easy to lose the way.
To counteract these communication problems, we need to be clear, transparent, and direct. These skills can be learned, and an executive coach can help as a third party to help ease communication problems
Planning
There are two crucial things needed to plan for a successful family business transition. Let’s call the first: early transition planning. This involves all the strategies we can put in place before the real transition starts to take place to increase the involvement of the succeeding generation in integrating into the business. For example, internships programs, bring your children to work events, family and business bonding activities, etc.
The second is the real transition plan. We cannot just expect the new generation to come in and hit the ground running. Shadowing programs, visiting the different departments, building rapport, and learning how to be open-minded and respect each other in a work setting are essential elements to consider.
Generation Gaps and Family Dynamics
The last element we will discuss is how generation gaps play a role in the family transition. The opening of this article was about a relationship between father and son and how they see each other.
The older generations often feel like their wisdom goes unheard, and the same goes for the new generation. The truth is that both generations hold their own kind of wisdom and deserve to be heard. There can be so much power to move forward in learning to respect, listen and consider each other. Instead of allowing dysfunctional patterns to emerge where either party feels unseen or unheard.
One of the crucial lessons to learn here is to successfully transition from one generation to the next: we must begin with transparent conversations from an early age. At a place as casual as the dinner table, we can include and expose our children to what goes on with the business and how it's vital to the family. We observe that family and company values are connected in many successful businesses.
Tiara Hoquee
Psychologist and Emotional Intelligence Coach