It’s a cliché as old as time that older generations view their successors as lazy and entitled, with millennials often labelled as such. However, research has shown that the opposite is true, with nearly three-quarters of millennials working more than 40 hours per week while one-quarter work more than 50 hours. This generation is also the most educated among family business leaders, with 39% holding a master’s or doctorate. This could explain why family businesses led by millennials and Generation X perform better than those led by older demographics.
Younger generations are ready to lead
So it’s clear there are benefits for welcoming millennials into the family businesses. However, the question is when to pass the baton to the younger generation? It might lean on more than just when the incumbent leaders feel like retiring. More than half of current family business leaders say they plan to retire between the age of 61 and 70. Conversely, most millennials in such positions plan to retire before they turn 50.
This underscores the need for the careful management of succession in a family business to welcome the younger generation and ensure that plans are in place to groom a successor in a shorter time than may have been the case in previous generations.
The question of who should take the reins after that is also viewed differently by Generation X and millennials, who generally think it is less likely that a family member will be the next CEO than baby boomers and the silent generation. Rather than forcing a family successor, succession plans for family businesses should acknowledge these perspectives and chart a course that will be best for the company and the family behind it.
Formalising governance structures
While large family businesses have likely had such structures in place for some time, more and more companies of all sizes are working to formalise and improve their governance processes and structures. This needs to happen at both the corporate and family levels. At the corporate level, companies may benefit from forming a board that acts as a guiding force, particularly one with independent advisors or directors who provide objectivity and an outside perspective.
At the family level, establishing governance structures can facilitate decision-making, ease communication among family members, help them identify more closely with the company, increase transparency, and promote the development of new ideas. These structures can include formal meetings, assemblies, councils, employment policies, conflict resolution guidelines, or outside consultants.
Digital transformation needs to happen too
The impact of Covid-19 accelerated the adoption of digital platforms and practices across society. Consumption patterns changed, as did the way people worked and communicated. Companies that could not keep up quickly lost market share to those that could. Unfortunately, many family businesses fell into the first category: 80% of companies surveyed by PwC said digital and technological innovation was a top priority. In comparison, only 40% said they had strong capabilities in this regard.
These capabilities are critical because they increase performance and agility, enhance focus on sustainability, and improve transparency among family members – 73% of digitally capable businesses shared information transparently with the family, compared to 58% of weaker organisations.
On mergers and acquisitions
If the younger generation is not interested in taking over the business at a particular time, it may well be that the family businesses are sold or taken over. The same is true for companies that have failed to adapt to the challenges of the Covid-19 pandemic or to changing generational consumer behaviour. Private equity firms sitting on record amounts of uninvested money have found family businesses to be increasingly attractive prospects, leading to a growing trend of acquisitions.
The question of sustainability
Investors and consumers are increasingly focused on the environmental impact of economic activities, putting pressure on businesses of all types to pursue more sustainable practices. PwC’s Global NextGen Survey 2022 found that 24% of the next generation (Generation Z and millennials) see reducing their company’s environmental impact as a priority, compared to 15% of the current generation. Also, 31% of NextGen see an increased focus on social responsibility and sustainability as a priority, compared to 16% of the current generation.
These sentiments are only slowly translating into real change, however: 72% of the next generation expect to make a personal commitment to improving sustainability in the future, while only 28% are already doing something about it.
The time to act is now. A study by Family Capital of the environmental, social and governance performance of the top 100 listed family businesses found that they performed significantly worse than the top 100 largest non-family companies in the Fortune 500. This has weakened confidence in these businesses, but the consequences are more than reputation, as the market capitalisation of family businesses lags behind that of non-family firms.
Increased gender diversity
Beyond simply being the right thing to do, the tangible business benefits of greater diversity are being recognised. Women have always been part of family businesses in one way or another. However, their role has often been downplayed in the past to present a male figurehead as the boss.
Women’s innate and socially formed nurturing nature can often lead them to take on the role of Chief Emotional Officer, tasked with bringing perspective and understanding to the affairs of the family business. While this can positively impact a business, this stereotype risks not providing women with the same opportunities to learn, practice, and internalise the company’s practices and make the connections necessary for them to assume formal leadership positions.
Fortunately, mandatory and voluntary social changes have increased the visibility of women in family businesses. When selecting a successor to the CEO, only 12% of companies adhere to the first-born (often male) rule. 23% choose the most qualified candidate, and nearly half decide based on the candidate’s interest in the company.