A good handover to the next generation is crucial for a family business

Passing control from one generation to the next is a critical moment for a family business. It can be a positive, but often businesses lose momentum. It can bring a family together, but all too often it drives a family apart.

If you are planning to hand over, what should you expect? What do your successors need to know? And how can you ensure an outcome that is good for the family, as well as for the business?

Here are some reflections from my more than 20 years’ working with family businesses:

  • Handing over is hard. Company founders have often given their lives to their businesses. So naturally many feel protective and reluctant to step back.

What motivates the next generation?

HSBC Private Bank commissioned a report from the Economist Intelligence Unit to explore the aims and aspirations of young leaders in family businesses. The next generation prioritises making a positive impact in communities across the world, the report says. Many seek to build ethical and social considerations into the way they do business as well making philanthropic investments. Read more about the report Motivated by impact.

  • It’s also emotional. A good handover is crucial for the business, but it can also have a big impact on relationships within the family. Where there are several children who wish to be involved, someone needs to decide who will take which role. There is always the risk that someone will feel left out.

  • ‘Eldest first’ doesn’t have to apply. The best succession plans are based on a cool-headed appraisal of the different strengths and preferences of the next generation of potential leaders. That might mean favouring younger siblings over elder siblings, skipping a generation or going outside the family.

  • The next generation may have a different perspective. They may want to take the business in a new direction, seek a new relationship with employees or branch out into new markets for example. Their aspirations need to be understood and aligned with the overall plan – if there is misalignment it needs to be addressed.

  • Young leaders may care about business impact in the broadest sense. The next generation may also be sensitive to wider issues such as the firm’s social and environmental influence; in their view it may not be just about the economics.

  • They often take a close interest in philanthropy. Many younger people want to refocus existing community investments on one or two specific issues that really matter to them. Often they will look to take a more strategic approach to philanthropy and to measure the impact of their philanthropic 'investments'.

  • Sometimes, it’s best for the family to step back. Where the business has reached a certain size, the founder might decide it needs the leadership of a seasoned CEO from outside the family – potentially disappointing children who had hoped to take over. But with good planning the family can still be involved in other important ways. Ownership and management are two different things and offer different ways of contributing to the firm’s success. Family members can play an important role in the company’s success by being good owners, putting in place strong governance and processes at ownership level.

  • Talking helps. When family firms change hands there is always a risk of conflict. Calling in a neutral third party with experience of working with family businesses can provide key family members with a chance to talk about their individual views and aspirations. These discussions are sometimes emotional, and often uncomfortable – but almost always helpful in the end.

Read more about family governance on the HSBC Private Bank website.

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