July 25, 2018 by Jason Contant
For brokerages considering succession planning, allowing the next generation to “find their own path in the world and then successfully boomerang back into roles in the family business is critical to the future” of the business, according to a new blog published Tuesday in Harvard Business Review.
The blog’s authors use the example of “Henry,” who encouraged his children to pursue interests outside of the family business once they got into their late teens and early 20s. Henry “watched with pride as each of his children found their own career path – one as a lawyer, one an artist, and the other a successful banker,” wrote family business advisors Sam Bruehl and Rob Lachenauer, authors of the blog How Family Business Owners Should Bring the Next Generation into the Company.
However, Henry had never given much thought to the roles his children would play in the business in their thirties, forties and beyond. “It was as though he had thought through his coaching for only the first half of a football game,” the blog said. “In the ‘second half,’ he found that his earlier advice needed to be reversed. He had to find a way for his now older and successful children to be attracted back to the family business – a place they’d been explicitly excluded from. That step, it turns out, is much harder and at least as important.”
The authors outlined five key elements to help guide the next generation successfully back into the family business:
1) Help the next generation find their right roles
Too often, owners focus on only one role for the next generation: the future CEO. “But that’s too narrow a view,” the blog said. “Multiple roles, beyond the CEO, are essential to effective ownership – roles that cannot be outsourced.” Examples include being a board member or running a particular office.
2) Get the group dynamic right
Those re-entering the family business will likely have different relationships with the business. Set time aside for those re-entering to get to know each other again in the new environment – without the parents in the room. Discuss interests and the breadth of life’s commitments (personal, nuclear family, broad family, career and role in the family business).
3) Help them find their collective voice
As the next generation of family members become owners, the board of directors will ask them what they want from the business as owners – growth? dividends? a sale? “Show them that if they individually ask for conflicting goals from the board, their power as owners will dissipate,” the authors advise.
One solution is to appoint a current board member to work with the next-generation returnees; the goal would be to help the new owners find their collective voice and trade off five potentially conflicting owner interests:
4) Create a next-generation development program
These programs often focus on certain key objectives:
5) Give them room to operate
Top business families work in a mental model of four distinct “rooms” – the owner room, family room, manager room and board room. Make sure all owners understand the rules of each room and how to recognize which room they are in at any given time. Then, over time, challenge them to “furnish” each room with people and decision processes that will eventually work best for their generation. A healthy furnishing process may take five to 10 years to get right.
“When you set up a proper strategy for integrating your adult children into the business, you may be pleasantly surprised by how their experiences outside the business have prepared them to thrive,” the blog said. “The goal is not only to help the next generation develop concrete leadership skills, but also to develop psychological ownership of the business. You never know, the artist daughter might just surprise you with her best work yet – as an owner.”