Generational Transitions in a Family Business

2 November, 2015

Generational transitions are risky times in the life of a family business. Preparing the new generation of owners is a critical part of ensuring long-term success of the firm. Research shows that a significant number of businesses fail during this time. In fact, in their book, Family Business, Poza and Dougherty cite only 30% of family businesses survive the transition to the second generation, 12% survive the transition to the third generation, and sadly only 4% survive the transition to the fourth generation.

Leaders of family firms can take action that will help prepare future generations be prepared to be good stewards of the firm when their time comes. It’s important that leaders start the process early. In fact, preparing future generations should start now, regardless of their age or the season of the business.

What’s the worst time to plan for generational transition? It’s too late when you are ready to retire or turn over the reins of the firm.

There are many best practices when it comes to preparing a family firm for generational transitions. Family governance practices that clearly define the family’s role in the firm are critical. These may include a family council, a family charter, policies for family-member employment and leadership.

Young members of the family can be taught the value of a good work ethic and stewardship. High school and college-aged members of the family can work in the firm during summer breaks. Young adults should be taught about the family’s responsibility to the local community and employees of the firm. The mission and vision of the business should be shared with them so that they understand where the business is going and explore how they may be a part of that vision.

It is critical all members of the family understand their role in the firm and there is an established communication path between the family, the board of directors and the firm’s leadership. It’s important that time is taken to cultivate an attitude of stewardship and a sense of responsibility for maintaining the health of the firm.

Are you facing a generational transition in your family business? We can work with you to clarify your vision and build a family governance structure that will educate the next generation and prepare your family and firm for the next transition, before it comes.

At Dorsey Management Consulting, we help our clients learn new skills and expand their leadership capacity to better lead their organizations into the future. We help leadership teams learn how to work together more effectively and efficiently, enabling them to make sound and timely decisions in pursuit of achieving greater success. We partner with our clients to design and build succession plans and develop their future leaders. We coach executives to achieve higher self-awareness and better leaders of people. We do this in service of learning, helping each of our clients become better versions of themselves and achieving organizational goals.