Melanie Stern is Section Editor of Families in Business magazine.
Family business successors face increasing pressures and new challenges as they step up to the fore in an unforgiving global business landscape. How can tomorrow's leadership prepare for the role?
While no definitive information exists on Europe and Asia, recent research into US family businesses has listed succession as one of their most pressing problems. Statistics show that some 40% of America's family businesses will see a leadership handover before the end of the decade – but the same stats also showed that over half of CEO's aged 61 or over retiring by the end of the decade had not chosen a successor, and warned that this lack of planning 'sets the stage for stressful transitions that may divert precious resources needed to run the business effectively' (Raymond Institute, 2003). Although CEO's are clearly not all ready for the changes and issues involved, there is a plethora of ways for both generations to prepare for leadership transfer wherever the family business is on the globe.
Dedication to tomorrow's family business
Chicago's Loyola University (also an FBN USA Chapter) launched the Next Generation Leadership Institute in 1996, after talking with several families about their needs, to dedicate itself to the task of preparing students for all the dynamics of the handover and how to manage it successfully. This Autumn it welcomes the future of family business to its intensive 18-month Leadership Development course, aiming to teach its students "everything (successors) need to know about running a family business that a traditional business school won't teach them," according to executive director of the Loyola Family Business Center, Andrew Keyt. "The programme wasn't designed to be about accounting or finance, it's about managing the change of succession: self-development, managing family dynamics and creating a leadership development plan for each successor." The course provides each student with a personal mentor who is a family business CEO, as well as a personal coach, so they can have a constant point of reference and advice.
Keyt observes that there are three main points of learning for successors to be able to take the baton: knowledge of self; knowledge of one's family dynamics and governance; and of course, practical business knowledge matching one's family business sector and specific role as leader. Additionally, the Institute's teachings consider the potential headaches for successors posed by the pressures of 21st century business. "One of the biggest challenges family businesses face now is how to deal with the increasing change of pace in the business environment and globalisation of their marketplace," Keyt says. "The changes that used to happen over three generations are happening over one now – that places increased pressure on the family leadership to manage change and have a clear course for the future of the family and the business. Our curriculum is based on building the knowledge of self so next generation leaders know what their strengths and weaknesses are, can strategise how to manage those weaknesses, and learn how to leverage their strengths."
Some very progressive ideas have come out of the Institute; one student used a 'competency audit' to assess his family business and those working within it, and from that built a gameplan for improvement. "One of the things we've found about next generation leaders is that one of their challenges is getting open and honest feedback on their own skills and performance. Part of our programme is building that unbiased, constructive feedback," says Keyt. "We're preparing them to be a champion of change in their family business going forward, and also to work more effectively with all family business members both in and out of the business. What we often see is they re-interpret their family's vision for the business, which is a really powerful thing."
Instilling cultural pride and responsibility
Stong social and spiritual beliefs flavour the approach to family business management, relationships, governance and community interactivity in India, and these themes are woven into the teachings of the SP Jain Institute of Management and Research in Bombay. The Institute's Family Managed Business MBA programme runs over 18 months – this year starting in September – and consists of a student attending the Institute for instruction one week in four. The remaining three sees the student working full time in their family business, applying what they've learned. Any issues that arise are noted and raised in the next teaching session. "By the time the course is over, the student has obtained a good grasp of management concepts, as well as all the dimensions of his own business," according to the Institute.
The top issues that Indian family businesses feel their successors need to know are all about the emotional side of business – people management and appreciation of family business dynamics, for example – which the Institute says it tries to integrate into its curriculum to result in more creative and socially aware citizens. Over the course of 18 months, several phases are designated to gradually intensify learning, beginning with general management and moving on later to completing business audits, a 5-year business plan, a personal career plan and overseas visits.
While this course has become very popular and has seen some leading Indian family businesses go through it, SP Jain's Professor Parimal Merchant concedes that study outside of India is still the dominant force. "Education from reputed universities is an advantage and helps to establish credibility. Almost all family managed businesses aim for further education from universities, mainly in the US or the UK. Since they can afford to, successors generally do a lot of international travel, but more for general exposure than business orientation."
The beginning of something big
Australia's provisions for family businesses, which make up 50% of their business landscape (but considering the youth of the country are mostly restricted to SME's), have improved in the last five years, and in turn universities now hold a handful of programmes aiming to prepare the next generation for leadership. Lucio Dana is a family business tutor for Monash University and training solutions provider Mindshop. Monash runs a 13-week course, 'Successors in Family Owned Business', designed to equip students for all the typical issues of a family business – from sibling rivalry, to the challenge of meeting and exceeding former standards, to the impact of mode of entry and managerial autonomy.
Dana also dedicates some time to making sure successors do not think that, once seated on their new throne, the battle is won. With this in mind the tutor also set up a roundtable and mentoring plan to bring out into the open any fears or issues both successors and current leaders may have about the future, and membership to these comes with a subscription to online mentoring facilities provided by the Australian Family Business Resource Centre. Later, participants are encouraged to take part in more of the hard-edged business aspects of learning, drafting shareholders agreements, compensation policies and even performance review procedures. "A son or daughter's decision to join the family firm can be a very difficult and challenging one since it is inextricably bound up with their relationship with their parents," Dana says. "It is important for successors to make a special effort to find out what they are getting into and what they want to do before deciding whether or not to join the family firm."
Keeping entrepreneurship alive
The Netherlands is one of the more progressive areas of European business and schools of thought there tend to favour entrepreneurship quite strongly. At Nyenrode University, provisions reflect this; entrepreneurship studies are mandatory as part of every degree course it runs. Last November the University announced the formal employment of its first family business professor Robert Floren, who also accepted the Insinger de Beaufort Chair of Family Business. Floren is charged with establishing a base of research in the field at the University's Centre for Entrepreneurship.
Traditional executive education programmes hold enduring appeal for family businesses everywhere, thanks to their undeniable kudos and pick of specialist tutors. Harvard Business School's 'Families in Business: From generation to generation" course, running this November, is split into four disciplines: family business dynamics, succession-specific issues, governance concerns and wealth management topics. The family business concern at Harvard is itself some 50 years old, so those who choose to use it are likely to be afforded much unique insight from that perspective on their own situation, juxtaposed with family businesses of the past.
Of course, none of this can work unless the sons and daughters of today's family business leaders actually want to take the baton; luckily for them, choice is a buzzword of the third millennium so the anarchic picture of children being betrothed to the family concern without a say in the matter seems largely void. As Loyola's Keyt concludes: "What's clear is that for a family business to grow and thrive, it needs a leader who is passionate about what they do, and it is better to find that out early rather than late; to know before they take the role than after. It is important for the individual's health that they pursue something they are truly interested in, feel competent in, and engaged by."