Avoiding generation war when handing on the family business

One of the dilemmas for family firms - which make up more than 70% of Australian businesses - is whether to pass it onto family members or sell it to outsiders.

It depends on how feasible it is for the next generation of family members to run the business. Do they have the capability, the right motivation, skills, energy, resilience and entrepreneurial attributes to get the job done? Can they adapt to changing markets and competition?

Of the businesses that have thought about transitioning, around 60% plan to pass the leadership to another family member and 34% intend to hand it to a non-family member, according to a 2018 survey of family businesses by KPMG for the Family Business Association in Australia.

Succession can be tricky for family businesses because of colliding generational perspectives. The survey found families typically don't get together and discuss the future of the family aspect of the business.

The leader of a family business is usually entrenched in the role for an average of 15 to 20 years compared with a CEO's average of five to six years, according to KPMG.

This can mean they have set views on how the business is run, but the new generation will have different skills. Only 17% of family businesses have a succession plan for the future of the business, according to KPMG.

Even in businesses where the head plans to retire in five years, only 26% have actually identified who the new owners will be.

Here are strategies to help keep the business in the family:

Support

Most likely, the next generation needs assistance in the form of education, mentoring and networking.

If it is a large family business, many skills are needed to manage a portfolio of assets, employees and stakeholders.

Transition the succession

Succession shouldn't happen all at once, but instead be smoothed over a period of time.

KPMG says two key transitions for family businesses are transferring the most senior decision-making role to another person and moving the ownership and control of the business to new directors.

Loosen the reins

Future leaders need to build their confidence in running the business, says Michelle De Lucia, a director of KPMG Enterprise.

She recommends incumbents loosen their control a little to help build the skill sets of stewardship, stakeholder management and leading and managing people.

"It has to be the balance of the lessons learnt, but also recognising that the world is moving at a much faster pace than ever, and we need to tap into some of the younger generation's ways of thinking and strategies, including technology," says De Lucia.

Embrace different approaches

Every generation has a different perspective on the business. "The first generation is all about the business, growth and survival," says Dominic Pelligana, partner, KPMG Enterprise.

"They have had to work hard, and their concern is about action, not planning. They are typically entrepreneurial - all the traits of having implicit strategies rather than being good communicators."

Pelligana says the next generation comes along and wants to professionalise processes and to build greater communication.

Communication

Work on communication between family members otherwise problems and disharmony can build within the business.

Don't be afraid of conflict

De Lucia says some healthy conflict can lead to better outcomes. "If we can get everyone to acknowledge different styles, and we can get a good, healthy debate around the table, then you're halfway there on the communication piece," she says.

A good example of this was that a family's perception about their "adaptability", such as working together, how to solve major problems and being flexible about handling difficulties, was enhanced by evidence of related conflict.

A family council

Set up a family council to keep the communication healthy but make sure that the same person is not running the business board and the council, recommends KPMG. You could also set other governance measures such as a shareholder board.

Consult the experts

A common mistake is to listen only to family members rather than seeking good advice from outside experts, says Helen Kay, who runs Creevey Russell Lawyers, a legal practice specialising in family businesses.

Get stories like this in our newsletters.