Are you a family business transitioning to a new generation? She’s an expert in it
Next-generation family business members will be able to step away from day-to-day work and access a panel of experts at an event next month put on by the Prairie Family Business Association.
It will be held at the Buffalo Ridge Resort in Gary on Sept. 11 beginning at 12:30 p.m. and ending Sept. 12 at 3:30 p.m.
Here’s who should attend:
- Next-generation family business leaders working in the business.
- Next-generation family business leaders not working in the business but who may have ownership now or in the future.
- Spouses of family business involved in leadership and/or ownership in the family business.
- Those considering working for the family business one day.
Generations to Generations founder Agatha Johnson will be one of the featured speakers. She has worked with family businesses for decades, helping them to weigh their financial and life choices. She has helped guide many families struggling to make decisions and find solutions that served both their personal and professional goals.
What are some common issues you encounter when working with next-generation family business leaders?
One is the need for family businesses to build and train potential successors to secure a sustainable competitive position into the next generation. Many times families feel that years in the business qualifies them to take over; however, if not prepared and developed to be thinking as an executive and owner, the success rate is low.
Second, what questions should next-generation members ask themselves before joining the family firm? We would start with the one below:
Do I want to join my family business?
Belonging to the next generation of a family in business is often seen as a great privilege for a young adult: it’s a chance to develop personally and become financially secure. But it is also a huge responsibility, and some next-generation members prefer not to make such a fundamental decision early in their lives. Not everybody intuitively knows that they want to own and lead the family firm.
Parents might not openly discuss the question of the next generation joining the family business because they don’t want to put pressure on them. But children can intuitively sense their parents’ expectations. Potential next-generation successors are observed and compared to their predecessors, both within the family and by outsiders, to see if they can step into their shoes. Next-generation members need to not only develop their executive leadership skills but also have a fine sense of “family acumen” to manage their relations inside the family system. This area can and will create issues due to the lack of understanding of the impact of family relationships and conflict on family participation.
Too often families fail to recognize that family business conflicts result from a lack of participation and limited opportunities for the family to constructively explore individual differences related to values, goals, individualism and vision. The differences can be linked at times to how far apart in years that the founder and current or future generations are. The closer the generations are to the founder, the closer the vision and values are. The later generations, family members who work in the business or own, tend to be motivated more by personal concerns. To keep the older and younger groups from splitting apart, they must be encouraged to learn about the history of the founder, the wealth, family business, explore their possible involvement and consider the contribution they can make to the family and the business future success. Unfortunately, this may not happen if the family does not create an environment that encourages exploration, development and participation.
You advocate for an intentional approach to transition planning. What are some elements that entails?
Transition is a process for change which is deliberate and intentional for a particular outcome for the benefit of all involved. As families and family businesses develop and grow, relationships often start to become more complex, more difficult and, in some cases, more fragmented. Having the family work through a parallel process for transition that not only looks at the business but will look at the family and individuals as well is critical for success personally and professionally. This transition that the family subscribes to can prove to be key to the longevity of the family business and wealth. Inclusive and fair forums for discussion will help the family and the businesses thrive.
For each family, we work through the following elements that have subsets under each one. Those are financial, structure, family, human capital, society and philanthropy. The area of human capital will look at and have discussions and agreement for the family to create a specific training program for family members. Many may feel they understand the difficulty of running a company, but adding in a family system creates complexity that most aren’t ready for. Another element is guiding principles, which we help the family to work through critical areas and add any they specifically feel are critical for them. Ideally during the transition process there is a family constitution created which would cover difficult topics; this reinforces the importance of the family thinking about the right form for the next generations. Additional elements that are discussed and agreed upon are rights and responsibilities for participating in any form of wealth and very importantly the family business. Using this type of approach creates a structured dialogue specifically set up through the family constitution to desensitize issues and foster an environment of understanding and mutual respect between all.
You encourage clients to create a family constitution. How does that work, and why is it important?
A family constitution is an important aid to building and preserving the clarity of vision and mutual purpose within a family dynamic. This constitution forms a framework that engages with the family members, family office, family businesses, family trusts, etc. for the purpose of clearly stating expectations, rights, responsibilities, etc. The purpose of this is for the protection and enhancement of the operations of the family wealth. Here is an example.
- The purpose and importance of family.
- Family vision.
- Family mission.
- Family philosophy on business ownership: The benefits for family, business and society.
- Policies regulating family relationships with the business.
- Bylaws of the family council and for family assembly.
- Statement of family’s goals and expectations for the business.
- Covenant of responsibilities that the family embraces.
What are some of the toughest decisions you find for families as they transition to a new generation?
Some of the toughest decisions for families is be honest with themselves about the next generation’s readiness and willingness to take over and be a leader and steward of the business or wealth. Too often the next generation has worked in the business learning from parents, grandparents, uncles, etc. but have not stepped out into the world to become independent and differentiate themselves from their family.
Give us a preview of your talk at the Next Generation Retreat. What can participants expect to hear from you?
Are you empowered by your family to take the company to the next level or are you to take over and follow exactly how things have run before? Do you have discussions with the current generation of owners as peers or are the conversations between parent and child? A family’s intellectual and human capital is more important than its financial capital for how the family weathers the challenges and passage of time. Often who is in the family is more important for successful growth of the family’s assets and the development of each family member in life than what the family owns. The financial and structural capitals of family wealth are resources that support a family’s core capital, which consists of intellectual, human and social assets. How to make the best use of financial assets over time depends on decisions informed by the intellectual and human capital the family leaders have. When it comes to humans, that happens to be family — each person’s strengths and the development and use of them is critical.
What are some of the key takeaways you think people will leave with after the retreat?
- Understanding family systems and patterns.
- Understand and demonstrate the Speed of Trust.
- Understand the purpose of the transition process.
- Empowerment — use your human capital for leadership to earn credibility.