Almost one third of UK family business leaders are failing to involve the next generation in their plans and strategies for the future, according to new research from PwC. [1] In a poll of senior family business members, the Big Four auditor found that while 53% of them are looking to hand over leadership of their firms to the next generation, just 18% have formal and communicated plans in place for that eventuality. Meanwhile, 29% haven’t discussed transitional matters with the next generation at all.
Almost half of these businesses (49%) are aiming to bring in professional expertise from outside the family dynamic – potentially hinting at a lack of confidence in the next generation’s skills.
The findings raise questions over whether family firms will be able to fulfil their best intentions: three quarters of the firms polled are engaged in some form of philanthropic activity beyond giving money to good causes, and 58% say that their long-term goal is to contribute to their local communities and leave a positive, lasting legacy. But those that leave the next generation out of the strategic picture could diminish their ability to achieve those aims.
PwC family business leader Hannah Harris said: “It is crucial that family businesses map the skills they need for their business to continue to deliver their purpose and build their lasting legacy … Family businesses have a great people track record: a loyal workforce, great local reputation and good links into their communities. They need to think carefully how they can use it to their advantage.”
Harris noted: “The next generation is key to a family business’s lasting legacy and not involving them in plans to pass on the business risks disengagement. It’s crucial to have a written and documented plan for the continuity of the business to improve transparency and trust. The next generation need time to build a collective sense of purpose and be supported in developing their own framework for success. Our conversations with family businesses show that often they recognise the need to start the process, but those conversations can be difficult.”
What sort of approaches can family business leaders take to initiating those tough conversations and ensuring they proceed in a positive fashion?
The Institute of Leadership & Management's head of research, policy and standards Kate Cooper says: “The role that family firms play within the broader productivity equation has been the subject of some important studies. For example, the Office for National Statistics’ recent Management and Expectations survey [2] – which gauged the strength of management practices across 25,000 UK enterprises – gave a lower ‘management score’ to family-owned firms than their non-family owned counterparts.
“Meanwhile, Lemos and Scur (2018) [3] found that ‘dynastic family firms are less likely to adopt structured management practices’, and proposed that ‘family CEOs cannot credibly commit to firing employees without incurring a utility cost — a reputation effect — which in turn induces lower worker effort and reduces the returns to investing in good management practices’. These are serious issues that family businesses must resolve.”
Cooper explains: “Succession planning is difficult for leaders because it relates to something they would rather not contemplate: the potential departure of long-serving, talented staff – perhaps even themselves. When those conversations are as intensely personal as they are likely to be in family businesses, it’s not at all surprising to find that they are less likely to take place. However, if the current senior teams in those companies want to guarantee their firms’ survival in order to yield a positive legacy effect, those conversations must happen.”
She adds: “It is important to remember that any difficult conversation need be had only once. As soon as all the relevant sentiments have been aired and they are out in the open, you are in a very different place to where you were at the point when you were trying to avoid it. So the inescapable truth is that, as a leader of a family business who wants the firm to have a bright future, you will have to initiate the conversation before long. Whether the scope of the discussion is one to one or a larger sit-down about how to ensure the firm will continue to thrive, professional facilitators can help to create conditions in which everyone is able to air their views in a structured, ordered way, in a climate of objectivity.”
For further thoughts on conversation, check out these learning resources from the Institute