How to prepare the next generation to take over the family business
Is the next generation prepared to take over the family business and with it the family wealth? What do you do when they are not? What to do when they are?

What you need to know

  • Family offices everywhere see a huge number of businesses being passed from one generation to the next, and even more so over the past two years, due to the Covid-19 pandemic.
  • Business transitions are common amongst family enterprises, viewed as an accepted circle of life where the rising generation takes over from the previous one.
  • Preparing the next generation to take over isn’t necessarily a difficult process, but for it to be successful, there are some key questions to answer first. Before asking if they’re prepared to take over the family business and wealth, it’s worth asking if they actually want to. And a question many families have had to grapple with is what to do if they don’t?
  • There could be many reasons that an heir doesn’t want to take over from their elders, but this doesn’t have to mean the end of the family. To protect the family from unexpected upsets, there are a few steps they can take to engage with the next generation successfully, even before the discussion about succession begins.
  • All of this can help mitigate the effects of a member refusing to take over, and in some cases might even help prevent it.
Governance Published on Simple December 8, 2021

In the seeming age between 2020 to 2021, many families have been navigating handovers from one generation to another. There could be a number of reasons for any next-generation transition, but over the past two years, many have been brought about by the ongoing pandemic, while others from the simple recognition that it’s time for a change.

Does the next generation want to take over?

Whatever the reason for the handover, one of the biggest elephants in the room is the question, “Do the next generation want to transition into the family business or family wealth?” The assumption that it is their birthright and they must take over has been a long-drawn conclusion for most families. Conflict arises when they realise that the next-of-kin wants to remain kin without the trappings of responsibility. With family dynasties, this causes a lot of anger and heartbreak, leading to many misplaced assumptions about what is the right and wrong protocol. To some extent, this can also lead to anger about entitlement and what a family member believes they’re due. However, one of the startling realities we have learnt from the rising generation is the need for self-actualisation. Many of them want to have their own identity beyond that of the family, which means that they want their own legacy, achievements and life outside the perceived chokehold of their family name and wealth.

This could be something hard to comprehend for those who have grown outside vast wealth, but children who have been raised in wealth have at times felt an experience similar to choking than that of privilege. Having had no say in which family they were born into and then having to integrate into a world that looks upon wealth as an indulgence or a sin at times, some members of the rising generation have had to feel shame for having more than their peers. Others have had to feel guilty for not giving money when they are consistently asked for it. Others have had to live lonely existences because they don’t know if they are being accepted for themselves or for their wealth, which can be a challenging situation in a society driven by material wealth and pretentious social media.

So when it has come time for the rising gens to step into the shoes of their elders and become the co-owners, inheritors, employees of their family business or family wealth, they at times have chosen the path of resistance and decided against joining the family name or legacy. In extreme circumstances, we have even seen members of the next generation change their names for anonymity.

Let’s examine a common next-generation transition example. Susan, a rising gen from a wealthy family empire, was a third born in her family. The likelihood of her joining the family business was never an expectation. When her father died, she was young. Squabbles in the family saw her eldest sister taking the helm at the family business, and Susan watched her sister’s upward battle against family and business challenges. As soon as she finished school, Susan left the country and tried to escape her family name. She wanted no association with her family or the wealth that came with it. Her focus was on building a life outside the shadow of her family or its wealth. Her father’s sudden death left a lot of pressure on his children and his remaining family. Susan never saw herself taking over from her sister. Many years later, when she was married and had children, she returned to the family and the business. Her return was motivated by her need to honour her father’s legacy and support her sister. She joined as a low-level employee and built up her experience until she was made the company’s Managing Director taking over from her sister.

This case is one of the many possibilities for rising gens. In the last few years, we have seen the playing out of next-generation choosing differently, in the case of Prince Harry and his departure from being a working royal. A rising gen refusing to work for the family business does not make them less of a family member. They have blood and relationship ties, and in most cases, they may have ownership and shareholding. It is crucial for the family and the business to understand and appreciate that this person is an individual and allow them to create their own experience, even if they choose to do so outside the family scope or business. This compassion also means there’s a chance the family member could return to the business at a later stage because there’s less pressure to make a decision when they’re younger.

 

next generation business transition

Understandably, a next-gen refusing to take over the family business can be hurtful, but it doesn’t make them any less of a family member.

How family offices can support the next generation during a transition

It becomes the responsibility of the rising gen to make their own decision. Four ways the family and family office can develop and support rising gens in whatever the decisions they make are:

Talk about the family’s wealth.

Next-gens need to understand clearly how much wealth the family has and how much of it they will have access to or manage. Money talk is not just about dollars and cents. At its core, it is about how we view money and our values around it, and how those values motivate our behaviour. Ultimately when we speak to rising gens about wealth and financial net worth, we can explore the other capitals of wealth and how they impact our lives. This may influence their choices and beliefs about family as well as business and wealth. Candid conversations ensure a free flow of information and dialogue that almost always benefits the people involved. The more the family talk about money, the more it creates an atmosphere where next-gens can address their relationship with money. This also allows them to make better decisions, avoid critical mistakes, set attainable goals and demystify the subject of money.

Encourage counselling and therapy.

In the past, going for counselling and therapy was seen in a negative light, as if a sign of something being wrong. With more and more people becoming aware of mental health and wellbeing, it is imperative to seek the expertise of a trained professional to get assistance in general, but especially through times of transition. Not everyone may need help, but having the guidance of a counsellor makes a difference. At times engaging in therapy even before conflict arises can help the transitional process. Therapy is actually “one of the best methods of preventative health care you can do for your mind and your body before problems get too big,” says Tara Fairbanks, PhD, a therapist in Santa Monica who works with adults and couples. She adds that therapy involves doing intentional work on the most significant areas of our lives, such as “your relationships, your emotional reactions to significant events and life transitions, your patterns of interacting with the world.”

Collaboration over resistance.

Money ‘preparedness’ is not an easy conversation, and neither is passing on a business empire that has taken blood, sweat and tears to build. The process itself must be managed as if a collaboration, where all generations bring their unique voice and viewpoint to the table. When everyone meets with the intention to work together, there is a higher likelihood of success than when there is resistance from one part. Family cohesion is the key to the efficiency of almost every successful family business and family office—especially those who make it to multi-generations. Cohesion occurs when a group feels connected and driven to achieve a common goal. While cohesive families are often made up of people with diverse talents and, at times, different backgrounds, what ties them all together is a strong sense of identity drawn from the family history and heritage itself. They share values, goals, and processes. In a sense, a cohesive family can be likened to a group of fans supporting and cheering for the same sports team—all working toward a collective win.

Ownership and stewardship.

Most people born into wealth ultimately, often by default, become the inheritors of wealth. As we have explored in the beginning, this reluctance to the inheritance can be a cause of rejection, conflict, and negativity. One of the key lessons that may change the feeling or attitude towards inheritance is starting to engage with the next generation as stewards. Stewardship refers to a proactive desire to create a better future for the family as a collective and individually, taking responsibility for their actions and future choices while responsibly balancing the needs of others, society, future generations, and the environment. Stewards in the rising generation are rooted in the belief that the only way to create sustainable personal and family success is to address the needs of the whole family and understand these needs appropriately.

Navigating a next-generation transition is never easy

It’s clear that family business transitions aren’t always such a straightforward matter especially if the next generation doesn’t want to take over. While this might hurt at first, it doesn’t need to be the end of the family unit. With some forward planning, honest communication and compassion, it’s possible to find an outcome that suits both generations.

About the Authors

Tsitsi Mutendi

Tsitsi Mutendi

Succession & governance

Tsitsi is an award-winning entrepreneur and consultant for family business and offices. As a third-generation family business owner, Tsitsi has extensive experience in international business and family business dynamics.

Connect with Tsitsi Mutendi

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