Transgenerational wealth creation is the result of a sustained and successful owner strategy. Yet these advantages need a strong engine, to energize their ongoing and sometimes strenuous adaptation. Its fuel is a mixture of familial and entrepreneurial orientation and reflection. The first question here is: is the purpose of your family still fueling distinctive advantages that make you the best owner of all your business assets? While operational involvement in the family business declines in Germany we see an increase of active-ownership roles amongst enterprising families together with the family offices. ‘Better’ owners within a family provide their growing team of non-family executives with a clear set of KPIs and guidelines as to what long-term success looks like for them. Collaboration between owners and leaders is the new normal and will become more established as a new modus-operandi. Below, we explore how a routine for your owner strategy can help your enterprising family continue to be the best owner, or steward, of its business legacy from generation to generation.
From business leadership to active ownership
In the founder model, the daily management of the family business was everything and there was no need for an owner strategy or even formal owner gatherings. Many highly successful “hidden champions” in Germany operate this way. Yet, looking at business and leadership from a professional owner perspective was, for the most time, a rare stance – since selling the family business in parts or as a whole was one, if not the most, powerful taboo among German enterprising families. Hence, the sense for continuity, independence and entrepreneurial success over generations in Germany differs fundamentally from the US, where serial entrepreneurship and corporate portfolios are the norms for multi-generational business families. Today, more and more non-family executives are in charge of multigenerational family businesses with substantial international operations.
Over the past decade, active family ownership has been a strong trend in the DACH region that has gathered more momentum in the last few years. Therefore, owners are increasingly confronted with and challenged by aligning objectives, incentives and actions – both for themselves and their executives. However, proficiency, excellence and routine with this ownership advantage still have some way to go for the majority of enterprising families. Currently, family offices such as Reiman Investors or the Quandt Trust incorporate the deepest talent pool and the highest professional standards in Germany and continue to set the tone in family-equity investments. Staying in the driver seat of transgenerational wealth-creation as an active owner means an increasing number of enterprising family members participate in seminars (such as INTES-Academy) or attend custom programs (UWH, HEC, IMD) to step up their game and responsibilities as better owners.
Changing the entrepreneurial mindset
Most strong family entrepreneurs or entrepreneurial couples with 30+years of leadership experience often view their owner responsibilities as a time consuming, demanding or uninteresting task. In their time, approval by the board happened by looking at yourself in the mirror and asking yourself as the majority owner “do we commit, or not?” Quality of decision was everything, transparency negligible, and formality vicious. “Man, was life simple here,” as some of the entrepreneurs in the midst of preparing their succession might sigh in retrospect.
The change in the predominant succession paradigm into outside management will soon become the norm of our so-called new normal, especially for these larger “hidden champions”. This new normal leaves the matter of the business’s competitive advantage to outsiders, but demands active, competent and engaged owners to set the goals. Making this shift in mindset and capabilities of the enterprising family is key to making succession an opportunity – to take your transgenerational entrepreneurial potential to the next level. One good example of this is the Viessman family and their approach to transition to the next generation. Active ownership beyond the core business also creates opportunities to get the growing number of next-generation members entrepreneurially involved, take leadership responsibilities, and generally be more active.
Making ownership decision-making more independent from the entrepreneur’s mind is at the heart of all succession and wealth transfer. Enterprising families have found clever approaches to take their entrepreneurial mindset and translate it into structures and processes. For example, Serafin Unternehmensgruppe, based in Munich, Germany led and cofounded by next-generation family-entrepreneur Philipp Haindl. Constantly and rigorously asking yourself “will we be/are we still the best owner for this entrepreneurial asset? becomes your mantra, especially when you follow a decades-old “buy and build” strategy. This helps to form a successful owner strategy. Getting all the relevant KPIs about ownership advantages correct and up to date, and educating yourself on your private dashboard is also an objective we increasingly see proactive enterprising families pursue. They can choose from various platforms that are available to support ownership collaboration and reporting. And there will be more technology to come to the market, especially as more and more in-house custom developments open up for third parties in family offices.
Four routines of better owners
Ownership advantage is the centrepiece of the transgenerational wealth snowman. Familial and entrepreneurial orientation build the foundation and constitute the core competencies to building transgenerational ownership advantages (such as social capital, governance, financial capital, and talent). As families build their distinct ownership-advantage profile and shape it over generations, their priorities in transgenerational wealth creation vary regarding reinvesting, exit or diversification. Having a simple picture in mind is often helpful to align the cooperation between family, owners, directors, and executives and can facilitate coordination more effectively. More important than having a shared picture of what success looks like is the daily decisions and actions. A strong ownership advantage is the result of day-to-day practice, like brushing your teeth, but with more severe consequences. Breaking down the conversations necessary to take place over each year into sections is helpful to start putting your owner strategy together. From personal experience, starting the new year with the Delphic maxim “know thyself” is not a bad place to start.
Routine 1: Know thyself
“Reflect upon your present blessings — of which every man has many — not on your past misfortunes, of which all men have some.” Following Charles Dickens positive stance on the circumstances, maintaining a positive outlook in the midst of adversity is what characterises many successful “hidden champions” during the transition into a new normal. Self-reflection is an essential skill for better owners and is often a critical bottleneck. With too little self-awareness it is hard to define the role of the non-family executive leadership team. Under the ‘new normal’ conditions, better ownership means encouraging more ongoing learning among the most senior leaders and executives. Herein, better owners are keeping their eyes on the long-term future and business model. As part of their responsibility, better owners become sponsors or mentors for top talents in their skill-development journey.
Routine 2: No transpiration without inspiration
As the philosopher, Søren Kierkegaard said, “Life can only be understood backwards, but it must be lived forwards.” Better owners use future rooms to challenge and inspire their long-term trajectory of wealth creation. Among next-generation members as well as senior-generation members, successful enterprising families have made it their habit (during Christmas skiing week, for example), to discuss trends and developments affecting their purpose, core competencies, or their practices of reinvesting diversification, and exit.
Some families might have more discussions about innovation, proactiveness and competitiveness framing their entrepreneurial orientation. While others may take their conversation to a more risk-averse stance centred around independence. Regardless of the respective preferences, having a routine for transgenerational dialogue in place that works like a Swiss watch is key. Jointly reflecting about how entrepreneurial norms, beliefs and principles are being fundamentally challenged by modern paradigms – that’s what sets true next-generation qualification apart. Just combine the trend “brand value” with social media from the perspective of a global “hidden champion” that carries the family name. Today a 7th-grade family member is present on Twitter, where their family business is actively campaigning its most recent acquisition. Does this family need a privacy rule and a code of conduct about their social media profiles? This is also the place to start developing the guidelines for family philanthropy or social impact investments of family members. Others might visit family equity funds to learn about investments in start-ups. Collaborations with start-ups are considered to fuel one’s capabilities to take calculated risks, move quickly and decisively while scaling the business model.
Routine 3: All options on the table
“An option hides where we don’t want it to hide”, says Nicolas Taleb. The options an enterprising family can choose from to achieve transgenerational wealth creation are: exit, reinvest, or diversify. ‘Better’ owners have a recurring discussion about exit options of increasing or decreasing relevance for their wealth creation in the long- and short run. “Hidden champions” routinely have well-structured evaluations together to discuss their future parameters to measure successful wealth-creation in their understanding. Strategic excellence and smart governance, including reporting and compliance, are necessary core competencies to successfully implement any buy-and-build strategy. Which is something many entrepreneurial families such as the Haindl family pursue. Are there strategic gaps, either regarding family or entrepreneurial orientation in the enterprise? Maybe the differences in understanding social responsibility between generations have increased substantially during the reset. So the options are: (a) to close this gap, (b) to maintain the gap, or (c) to widen the existing gap even further. Which one do we pursue and how do we make it happen?
Routine 4: Activating your owner strategy
Do not fall from analysis into paralysis, because this often comes before obtaining something worthwhile counting. The best kind of owners makes significant contributions to focusing the family equity strategy toward the long-term ownership business model. In the new normal, it will become increasingly relevant for these owners to help next-generation leaders, minority owners, senior directors and veteran CEOs assess their readiness to drive change and transform in their respective jurisdictions.
First and foremost, a good owner shares their entrepreneurial concepts by becoming involved as mentors to special initiatives. They also contribute to activating the strategy by commitment, purpose and sharing their conviction. They steer the conversation towards shared objectives and direction. To drive execution, these owners have a picture of the desired future in mind to share with the enterprising family, the owner assembly, and the board. Moreover, these owners act as mentors or sponsors for infrastructure projects supporting the change. Activating a strategy from a better owner role also involves the ownership assembly and the board of directors. Especially in interactions with the board and the senior executives, the enterprising family must lead by example. Especially in the new normal, owners have raised their game in selecting, assessing, negotiating and onboarding new talent, both from within the enterprising family and from outside. To bolster confidence and perseverance for the new normal, better owners make it one of their highest priorities to reward individuals and teams visibly for accomplishments.
Being the role model
Tell your story, show understanding and dedication through a compelling narrative for balancing transformation and tradition. Aligning your story with outside directors and non-family-executives helps elicit better reactions from shareholder-councils and dedicated next-generation leaders. “Know thyself” may be self-explanatory, but research shows time and again that leaders tend to underestimate how their actions affect the people around them and how they can be interpreted. This is especially true for families where individual members carry the firm name, where enterprising families are brand ambassadors under special observation from the public eye 24/7. The fallout that a next-generation member of the Bahlsen family went through after a spontaneous statement at a conference in 2018 about personal financial wealth drastically demonstrates the risks involved – personally, socially and economically. Another finding from the research is that with increasing power, people tend to overestimate how much they are part of the solution and not the problem. In face of such facts, better owners make it their habit to get challenged by a “devil’s advocate” or a “hofnarren”. From that understanding, successful owners help external directors, executives and family councils to co-operate better while combining their respective needs.
Last but not least, establishing routines that help the individual family member become a role model and continue to live up to its expectations is essential. Formal mechanisms are smart if they reinforce entrepreneurship and leadership. Most importantly, such governance mechanisms should be geared towards collaboration beyond the individual group to involve the enterprising family, the owner-council, the board, and the executives.
Start a transgenerational ESG dialogue
The ESG principles introduced not so long ago provide an excellent starting point for an informed dialogue between the enterprising family, the ownership council, the board and the executives. This is because governance mechanisms are now considered to create an investment premium. To develop a clear owner strategy is to create an infrastructure for this conversation that fosters smart, safe, seamless and compliant cooperation.