Involving the Next Generation

There is an old story in our profession about an 86 year-old founder, who one day call his (64 year old) son into his office, and announces “I am finally ready to hand over the company to you.” His son smiles, and then responds “Dad, that is great. But I will be retiring next year, and my kids are grown and doing other things, so they aren’t interested.”  This is somewhat humorous, and seems almost unbelievable, but I actually came face-to-face with the almost exact same situation last year (though the founder was actually even older!).

The question of “when to involve the next generation” in the business and in ownership has a fairly simple answer. “Probably earlier than the founder thinks.”  While founders are busy enjoying their lives and are largely fulfilled by their roles, they tend to fear the unknown and therefore do not typically move too quickly to begin transitioning to the next generation. This is understandable, but of course, the next generation is usually waiting (in a much less powerful position) to hear about “the plan.”

There are a multitude of ways to engage the next generation. Working in the business is the most obvious one, and many owners start their kids early in helping out in the business – often as a summer job, or part-time while in school. Providing ownership is another way owners can begin the transition process, and exposing next gen owners to the issues, privileges and responsibilities of being a good owner.  Parents are often cautious about moving ownership over until it is clear the successor is committed to the business, and this is wise.

There are other ways that kids can be involved earlier.  One we always recommend is by participating in a Family Council process, which kids can be part of as early as their teen years (this may start by attending for only a portion of the meeting, and may provide specific activities for the next generation that are aimed at learning and developing things like money management, philanthropy, business understanding and training, etc. It can also be something which can affect them directly if they begin to work in the business.  Having clear rules about what that means (a “Family Employment Policy”) is a great way to ensure this happens in a healthy way with minimal conflict. Allowing the kids to participate and understand why this policy is in place will help them develop a better understanding of the business, the culture, values and vision for the business and the family.

Having open conversations about the business issues that affect the family, and family issues that will affect the business, are important and healthy ways to build communication and trust. This should not be a secondary goal. Research on family business succession consistently shows that a failure of communications and trust are the main reasons business transitions fail within family enterprise. Opening up lines of communication early, and providing opportunities to participate, is the best way to prepare for the future, and move a healthy succession ahead.