Transferring a family-owned enterprise to the next generation raises complex and emotionally charged questions. A Chinese proverb states that "wealth shall not pass three generations." The first generation builds wealth, the second manages it, and the third generation destroys it.
In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses the role of the next generation with Martin Roll, a global expert on family business and family office topics and a world-renowned C-level advisor and business school educator. He mentored over 650 Next Generation Family members and understands what keeps them awake at night.
"Next Gen X-ers can bridge past, present and future"
Martin introduces how the combination between family and business is unique. The family brings values, legacy, passion, entrepreneurship, and, first and foremost, very personal involvement to a business. He believes that the next generations in family-owned enterprises can play the roles of change agents and have three distinct roles to play. They can work in the business, serve on the board (or supervisory board) and/or become a responsible owner. Naturally, these different roles can change over time, and often someone might start to work in the business when young, later serve on the board, and eventually be an owner of the business, for example. But Martin notes that involvement needs to fit with their personality, skills, and interest because this is a long-term commitment.
Overall, he believes the role of the next generation is renewal, and to be the voice of the new generation, modern customers, and competition. Next-generation leaders should question the established norms and structures, but he cautions that coming in, you do not need to create a revolution in the firm but to ensure constant renewal and fit for purpose.
"Make sure you clean up the shop in every generation, don't pass on the laundry"
Martin believes bringing Next Gen family members into the business starts with creating the invitation to join or to be involved. This can be difficult, with different expectations and possible tensions across generations.
He notes some stumbling blocks for the Next Gen, such as their mandate, role, authority, and autonomy. He cautions that the issue of when to step aside and a retirement date can be very difficult for seniors. Only 15% of family businesses worldwide have a plan for succession in place, and yet it takes at least 5-7 years in most cases to do succession. This is where boards have a huge role in mediating, asking sensitive questions, guiding, and nurturing succession over time.
"Outside directors on family business boards have a huge role to play"
Martin outlines the role outside directors have as directors of all generations - not only the senior generation on the board but also the younger generation coming in. They can provide mentorship and facilitate, creating a formal and informal relationship with the Next Gens entering new roles.
The three top takeaways from our conversation are:
1. Succession is one of the most complex matters in a family-owned enterprise, so planning should start early to ensure the next generation is in place when needed and desired.
2. Remember that next-generation members bring renewal, so directors can influence how to integrate them, onboard them and help to mentor them.
3. The next generation brings continuity, and they are the ones that will make sure the legacy carries on. The board should help the long-term competitiveness and relevance of the family-owned enterprise and help to unlock that passion.