Legacy and succession planning trends and advice
Only 3% of family-owned businesses survive until the fourth generation and beyond. There appears to be a cross-generational disconnect with family owned business succession. We explore past and present trends and cast a glance to the future regarding successful planning to help ensure legacies live on and thrive.

By Francois Botha
Published on Simple October 5, 2020

As much as things change, they stay the same… or do they? One would be forgiven for assuming that Family Offices are a new concept. In fact, the practice of employing an independent party to manage the investments of wealthy individuals and families dates back to the sixth century. The function then, as it is now, was to outsource centralized wealth management with one primary goal, to ensure cross-generational succession and continue the legacy.

Heirs needed to be produced and step-up into leadership roles without question. Some families became their businesses and stood the test of time. Others didn’t. It would appear that independent Family Office consultants played a pivotal role in succession planning thereby ensuring the longevity of the legacy.

Research conducted by the Family Business Institute, specialists in succession planning, shows that 30% of family-owned businesses survive until the second generation, 12% to the third and only 3% to the fourth generation or beyond.

This is indicative of how business paradigms have evolved during the various Industrial Revolutions through which economies and successful family owned businesses have endured. And it makes sense.

As much as things change, they stay the same… or do they? One would be forgiven for assuming that Family Offices are a new concept. In fact, the practice of employing an independent party to manage the investments of wealthy individuals and families dates back to the sixth century. The function then, as it is now, was to outsource centralized wealth management with one primary goal, to ensure cross-generational succession and continue the legacy.

Heirs needed to be produced and step-up into leadership roles without question. Some families became their businesses and stood the test of time. Others didn’t. It would appear that independent Family Office consultants played a pivotal role in succession planning thereby ensuring the longevity of the legacy.

Research conducted by the Family Business Institute, specialists in succession planning, shows that 30% of family-owned businesses survive until the second generation, 12% to the third and only 3% to the fourth generation or beyond.

This is indicative of how business paradigms have evolved during the various Industrial Revolutions through which economies and successful family owned businesses have endured. And it makes sense.

Highlighting the Hurdles to Cross-Generational Legacies

First, families traded and bargained to survive. Then they entered the First Industrial Revolution that spurred-on the adoption of the Linear Economy business model; roughly defined as taking, making, distributing, using and then disposing. They continued to evolve through two further Industrial Revolutions to enter the Information Age.

Innovation and technology led to the emergence of the knowledge worker as business started to adopt the Cyclical Economy business model. The Re Cycle model as it’s often referred to suggests we limit taking by re-using, re-repurposing, re-imagining, re-distributing and then re-investing.

As business, family owned or not, works through the meat and bone of the Fourth Industrial Evolution, digitization, automation and Artificial Intelligence have created fertile ground for the emergence of the Purpose Driven Economy business model. Purpose, people and impact on the Planet are being placed before Profits as the ultimate currency and measurement of success and business longevity.

Is it any wonder then, that a cross-generational disconnect now exists as witnessed by the 3% of family owned businesses that stood the test of time to make it through to the fourth generation?

These drastic changes in economic context coupled with advances in modern medicine seem to fuel the cross-generational disconnect and dampen the successful succession of family businesses. The older generation is remaining productive for longer periods of time. Family leaders continue to be actively involved in their businesses well up to the age of 80 years old in some instances. The implication is that introducing next generation family management into the business fold becomes increasingly challenging. Grooming through a co-operative approach becomes near impossible.

Agility suggests that family owned businesses must adapt quickly to unforeseen changes and challenges and also, turn obstacles into opportunities.

Solutions to Ensuring the Legacy Lives On

According to the Society for Human Resource Management which aims to build a world of work that works for all, effective succession planning should involve more than just a replacement planning process. It should also include a comprehensive employee development system. We add that the same holds true for the family owned business and its successors.

To continue emerging and then re-emerging family offices may want to re-consider the acronym AI, that generally refers to Artificial Intelligence. Agility combined with Innovation may very well be the key to succession.

This includes a short-term, long-term and broad-term view on recruiting and retaining talent who embody A+I. Better still, embrace these principles as pillars to succession internally for successors to flourish, remain and retain the legacy.

Agility suggests that family owned businesses must adapt quickly to unforeseen changes and challenges and also, turn obstacles into opportunities. Adapt or Die. This means that it is prepared for any unforeseen surprise or tragedy. Innovation on the other hand, suggests that opportunities are created that play to the strengths and interests of family owned business successors who may possess a more creative approach to business management.

Dr David V. Day, Professor of Organizational Behavior in the Lee Kong Chian School of Business, Singapore Management University, argues that in order to survive and thrive, successful organizations must be keenly aware of their leadership talent and how to best develop it across all levels. Succession planning and leadership development are key processes.These tend to be formal, systematic, tailored or experientially based. Dr. Day is the lead editor on two noteworthy books including Leader Development for Transforming Organizations: Growing Leaders for Tomorrow and An Integrative Theory of Leader Development: Connecting Adult Development, Identity and Expertise.

Writes Dr Day, “Leadership bench strength, the leadership pipeline and leadership capacity are popular metaphors for the underlying issue of ensuring that an organization’s leadership is adequately developed to face current and future challenges. Regardless of the term that is used, the particular concept emphasizes that leadership is not centralized in a single or small number of individuals.”

He moves onto explain that it begins with the belief or organizational norm that leadership is everyone’s business. This is due to the kinds of challenges faced in today’s globally competitive environment which are way too complex for any individual to figure out alone.

The article by The Wall Street Journal called “Death of the ‘Irreplaceable’ CEO Successor” provides an example of an organization that pinned its succession hopes on one person. That was until tragedy struck. The article chronicles Kerzner International Ltd with revenues in excess of $740m (as at 2005). The global luxury hotel and entertainment chain was founded by Soloman “Sol” Kerzner who, as CEO, handpicked his son to succeed him. His son tragically passed away in a helicopter crash. It left the company in disarray and forced Sol out of retirement at the age of 71.

Comments Dr Day, “Surprises do not only happen when the CEO or other key employees suddenly pass away, quit or retire. As the case illustrates, there are dangers of designating only one possible successor to a key position, regardless of its level.” Is this how the oldest continuously owned business which was established in 578 AD has endured today?

In his book entitled Centuries of Success, Professor William O’Hara, considered the foremost expert on the topic of continuously family-owned firms, poignantly writes, “Before the multinational corporation, there was family business. Before the Industrial Revolution, there was family business. Before the enlightenment of Greece and the empire of Rome, there was family business.” With a little help, he went on to identifying 100 of the world’s oldest continuously run family firms. Unsurprisingly, the very oldest remains Japanese temple-builder Kongo Gumi, founded in 578 AD.

On his list, Japan accounts for 10% of these continuously run family owned companies. They have endured from 6 generations right through to 40 generations. The United Kingdom accounts for 17%, France 16%, Italy 15%, The United States for 15%, Germany for 14%, Netherlands 3% and Spain 2%. In order of time, other countries listed with 1% include Switzerland, Sweden, Norway, The Netherlands, South Africa, Mexico, Ireland, Chile and Portugal.

Financial research and support services firm Teikoku Databank furthermore confirmed that more than 33,000 family owned businesses in Japan have endured for more than a century.

What is the Secret to Leaving Lasting Legacies?

In 2008, the Bank of Korea commissioned a report spanning 41 countries that concluded of the 5,586 companies older than 200 years, 56% were located in Japan. Financial research and support services firm Teikoku Databank furthermore confirmed that more than 33,000 family owned businesses in Japan have endured for more than a century.

Yoshinori Hara, Dean and Professor at Kyoto University’s Graduate School of Management in Japan who also happened to have worked in Silicon Valley for a decade, says, “In Japan, it’s more: how can we move [the company] on to our descendants, our children, our grandchildren?” He moves onto explain that Japan, including its towns and cities, are centuries more established when compared to the United States for example, yet remains at the forefront of innovation.

Innan Sasaki, the Assistant Professor at the University of Warwick’s Business School noted for her work on family owned Japanese company longevity adds, “More generally, we could say that it is because of the general long-term orientation: the culture of respecting tradition and ancestors, combined with the fact that it has been an island country with relatively limited interaction with other countries.”

Business longevity starts with instilling a sense of proud ****tradition, ethics, values and morals. But more than that, it begins by taking an un-blinkered look at the family business through various tools. Ask why to develop a organisation that adds value and that places purpose, people and the planet at its core.

Own the bigger issue through the HOW principle which suggests that longevity is achieved through purpose using Honesty, Open-mindedness and Willingness ****to adapt and remain agile.

Nathan Mayer Rothschild famously said, “It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have got it, it takes ten times as much wit to keep it.”

Successful succession therefore suggests that we surround ourselves with esteemed advisors ****and specialists in the field. These organizations have various tools at their disposal to assist in providing impartial and highly educated benchmarks and roadmaps.

Start to place value in the importance of soft skills. Shift perspective and consider that complex problem solving and creativity are now considered extremely sought after. These are rooted in the emotion of curiosity. For Family Offices and family owned businesses to leave lasting legacies, creativity will become increasingly more valued thanks to the manner in which technology advancements such as Artificial Intelligence shapes the future. Creativity in all its guises is still considered to be an irreplaceable human trait.

As we teeter on the brink of The Fifth Industrial Revolution, also known as Industry 5.0 or sometimes 5IR, we can expect technology to cycle back towards the concept of humanity which will be marked by creativity and a sense of common purpose which may very well connect the disconnected generational gap. Plan for it.

Continue to nurture and build the Family Office ecosystem and ensure that your brand reputation ****prevails. Invest in it today, for a certain and successful legacy tomorrow. And that starts by active listening to the advice provided by the all generations.

About the Authors

Francois Botha

Simple Founder. Strategy Advisor

Francois believes that the next generation of family leaders need new, simple tools and trusted experts with a fresh outlook.

Connect with Francois Botha View Francois Botha Profile

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