Successful succession in family businesses is a fragile transaction between baby boomers and millennials. “The firms that manage succession well are those that plan many years ahead.” says Henrik Steinbrecher, PwC Global middle market leader, in a recent report from PwC.
The PwC survey found three critical gaps that family businesses must address to overcome the pitfalls of handing a business over to the next generation: generation gap, credibility gap and communications gap.
If a family business can ready itself for succession with preparation and communication then this high-stakes event will be less disruptive to the business, its growth and its employees.
The generation gap is a particular challenge in a rapidly changing world. In the PwC survey, 20 percent of millennial respondents said they weren't looking forward to running the business. A significant majority – 86 percent – of those surveyed want to do something significant and special when they take over, and 80 percent have big ideas for change and growth, many of these changes involve drastic modifications in structure, budgeting and technology.
Many in the younger generation no longer believe that their family connection is enough of a reason to be promoted within the business, resulting in a credibility gap. Eighty-eight percent of respondents say they have to work even harder than others in the firm to "prove themselves." While 73 percent said they were looking forward to running the business, only 35 percent thought that was definite outcome.
The credibility gap also showcases the younger generations desire to have work experience outside the company before continuing the family business. In the PwC survey, 46 percent of survey respondents had worked for another company before taking a role in the family firm.
The communications gap reflects the pattern of an older generation overestimating the success of their leadership while underestimating the abilities of the younger generation to do likewise. More than half – 64 percent – of the younger generation thinks the current generation will find it tough to let go. This gap can lead to “the phenomenon of the 'sticky baton', where the older generation hands over management of the firm in theory, but in practice retains complete control over everything that really matters,” says Sian Steele, a PwC UK partner.