Family businesses need to bridge three key gaps for clean succession: PwC study

CoolAvenues Newswire | April 15,2014 04:13 pm IST

Family businesses need to bridge three key gaps, namely generation, credibility and communication, to ensure clean succession. The new research from PwC talks to more than 200 next generation family members likely to take over the family businesses in 21 countries worldwide.

Bridging the gap: Handing over the family business to the next generation focuses on the issue of succession: how family firms are planning for this, how the next generation views this, and the challenges all family firms face in implementing this.
 

According to the report, one word that crops up repeatedly in the research is ‘gap’:

The generation gap between the current generation and the one in waiting
The credibility gap the next generation can face as they struggle to get established, and
The communications gap that can open up between parents and children at whatever age and even in the most successful businesses.
 

Those who run family businesses have to operate on two different but related levels – as managers within the business, and as members of the family. Family business owners have to meet their responsibilities to employees, run the business successfully and also handle family dynamics.
 

Next Generation Family Business Survey 2014: A snapshot
 

Family businesses believe they have unique advantages
They take a long-term view of business, can make decisions quickly, and have an approach based on trust and personal relationships.
 

But the transition from one generation to the next is a potential fault-line which can make or break the business
Only 12% of family firms make it to a third generation, and only 1% beyond the 5th

 

To achieve a successful succession, a family firmneeds to bridge three gaps: the generation gap, the credibility gap, and the communications gap

 

The generation gap, between Baby Boomer parents and Millennial children
The world has changed in the last 30 years and family firms can struggle to keep pace, especially with global megatrends like demographic shifts and digital technology
The current generation is not always confident that their children are ready and able to take over, and more family firms are bringing in external CEOs
The next generation can no longer assume they will run the business one day: 73% of those likely to take over the business one day said they are looking forward to doing this, but only 35% thought it was definite, and as many as 29% thought it only fairly likely at best.
At the same time, 86% of the next generation want to do something significant when they take over, and 80% have big ideas for change and growth

Many of the next generation see the need to ‘professionalise’ their family firm, by introducing better governance, and more rigorous processes in areas like finance
 

The credibility gap, as the next generation seek to establish their authority
88% of the next generation say they have to work harder than others in the firm to prove themselves, both with colleagues and customers: 59% consider gaining the respect of their co-workers as one of their biggest challenges
Many of the next generation have worked in another business first, as a way of establishing their credibility: only 7% went into the firm after school – 31% went to university, and 46% worked elsewhere, often as part of a structured development plan

 

The communications gap, which can lead to misunderstandings and ‘no-go’ areas
Family businesses have to manage personal as well as professional relationships, and this brings with it the possibility of conflict: 22% of the next generation are concerned about working with family members, and understanding the family dynamic.
As management shifts from one generation to the next, the older generation has to understand the difference between ‘influence’ and ‘control’: 87% of the next generation think their parents have confidence in them, but as many as 64% think the current generation will find it tough to let go – the ‘sticky baton’ syndrome
 

The key is clarity of roles and responsibilities, and openness in communication, especially in relation to succession planning, where an independent mediator can help bridge the gap, and ensure the next generation is prepared to succeed. 

Concluded.

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