Partner Article

Bridging the family business generation gap

Lee Stamp, PwC’s North East private business leader, looks at new research into family planning and the issue of succession planning.

The transition from one generation to the next can make or break a family business; and as the ‘baby boomers’ hand over to the ‘millennials’, the risks of getting it wrong have never been greater.

The results of new research by PwC, talking to more than 200 family members likely to take over family businesses in 21 countries worldwide, looks specifically at the issue of succession and how family firms prepare for these changes.

The report identifies three areas where a mis-match of styles, ambitions and plans could cause difficulties for UK family businesses which account for over 9 million jobs, around UK £80bn in annual tax receipts and nearly a quarter of total GDP*.

The generation gap

The world has changed out of all recognition since the current generation took over, and the pace of change can only accelerate in response to global megatrends like demographic shifts, urbanisation, climate change and new technology.

The handover for ‘first generation’ businesses – those making the transition from start-up venture to family firm - is commonly the most fraught. Of those taking over under these circumstances; 20% say they’re not looking forward to running the business, compared to 8% for respondents as a whole.

The credibility gap

Bearing the family name can work against the next generation. 88% say they have to work harder than others in the firm to ‘prove themselves’. 59% consider gaining the respect of their co-workers is the single biggest challenge they face.

Promotion to CEO is no longer automatic for the next generation, with a growing number of family businesses being prepared to make tough succession decisions. The survey revealed that 73% said they were looking forward to running the business one day, but only 35% thought that was definite, and as many as 29% thought it at best only fairly likely.

The communications gap

There’s a tendency for some in the older generation to overestimate how well they have run the business, while underestimating their children’s capacity to do this as competently as they did.

Members of the current generation often comment that their children aren’t sufficiently entrepreneurial and aren’t prepared to put in the long hours they did to build the business while,down the hall, their children are wishing their parents would embrace new technology and new ideas.

This sort of impasse can slow down decision-making and lead to the phenomenon of the ‘sticky baton’, where the older generation hands over management of the firm in theory but in practice retains control over everything that matters.

The survey reveals that as many as 64% think the current generation will find it tough to let go.

Firms that manage succession well are those that plan many years ahead - ideally, five to seven years in advance - accompanied by ‘sensible conversations’ that address roles, responsibilities, and timings.“

This was posted in Bdaily's Members' News section by PwC .