Bridging the Generational Divide on Succession, Risk and Engagement

According to a new report, the current and next generations in family business are not fully on the same page. Changing that will require better communication.

This piece appeared originally on the Family Business Magazine website.

In a multigenerational family business, it’s all about perspective. Two generations can look at the same issue and arrive at two markedly different conclusions.

Take for example, succession planning. According to Deloitte Private’s recently released 2024 Family Enterprise Survey, 24% of respondents in the current generation agreed with the statement that “the family-owned business would continue to run smoothly and without interruption if an important family employee moved on, retired or passed away because we have a formal succession plan.” But only 13% of the NextGens surveyed felt that way.

This disparity, as well as the relatively low percentages for both groups, are noteworthy, Deloitte noted in the survey report.

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Current-generation members were asked what they are doing to ensure the next generation’s preparedness for leadership. Their top responses were familiarizing the next generation with the governance structure (33%); holding formal discussions regularly to discuss the business’s long-term strategic planning (32%); and involving the next generation in external relationships with suppliers, vendors, alliances and partnerships (32%).

But Deloitte Private US Family Enterprise Leader Wendy Diamond says the survey results seem to suggest that too few family businesses are taking those steps.

“What this comes back to is the communication plan,” says Diamond, who co-authored the report on the survey results with Deloitte Vice Chair, US and Global Deloitte Private Leader Wolfe Tone. “And how much has the current generation actually shared with the next generation around things like who, within management, may take the reins after a family member leaves? Is it a family member? Is it a non-family member? What is the ownership going to look like after somebody passes? What might the board look like?”

Succession planning in a family enterprise can be fraught with emotion among owners. For this reason, Diamond says, boards — particularly those with independent members — can play a vital role in developing a continuity plan.  Boards can focus solely on how leadership and ownership changes will impact the business and seek to mitigate potential disruption, including, for example, unexpected tax consequences arising from the death of an owner.

Risk was another area in which survey responses differed significantly among the current generation and NextGens.

Current-generation respondents perceived higher risks to business growth than the next generation in the ability to hire and retain employees (23% vs. 11%), the impact of climate change on business operations (20% vs. 12%) and the capital structure of the organization (24% vs. 16%).

Diamond says some of this disparity may be attributable to how younger generations view the workplace in general.

So, for example, current-generation business leaders who are uncomfortable with hybrid and remote work may be more concerned about hiring and retaining employees, Diamond explains. NextGens, on the other hand, may view the potential talent pool as being much larger because there are fewer geographical limitations.

In addition, Diamond notes that the current generation’s perception of risk has been shaped by years of working on the family business, while NextGens are more likely to be drawing from outside work experience.

“As they grew their business, the current gen may have been very protective of how much debt they took on [and] their willingness to take on minority investors, whereas, because NextGen may be working outside the business, they have different exposures to different capital structures, and they may be more willing to look at other alternative structures.”

As for the differing views on climate change, the Deloitte report posits that members of the next generation may not be fully aware of their organization’s impact on the climate and the potential regulatory requirements around it.

How NextGens view the future of their family businesses is also shaped by how much involvement they have in strategy and decision-making.

Current-generation survey respondents were almost twice as likely as NextGens to say the successor generation has a very high level of participation in decision-making (28% vs. 15%). Among respondents involved in enterprises with less than $500 million in revenues, only 7% of NextGens reported having a very high level of participation in the direction of the enterprise.

These differing perspectives may stem from incongruent definitions of terms like “participation” and “engagement.”

So, for example, while the current generation may feel they’re involving NextGens in decision-making by simply allowing them to attend board meetings, those NextGens may not feel they’re actually participating unless they have a vote, Diamond explains.

“In some of the situations that I’ve seen, [NextGens] may participate in all those meetings,” Diamond says. “But at the end of the day, the matriarch or the patriarch may be the final decision-maker.”

As Diamond and Tone note in their report, truly identifying the cause of divergent perceptions among current and NextGens will require frank conversations within each family business, involving both family and non-family leaders.

Otherwise, it’s just speculation.

“It’s hard to overstate the importance of ongoing, open, transparent communications,” they write. “Operating from a foundation of trust, business leaders may benefit by working hard to understand varied perspectives of family members/owners (perhaps through a family council), potential successors, and non-family management and employees. There should be no surprises within the family as to the plans and priorities of the organization. It’s not just about communicating to understand what others think. The real value may come in understanding why they think the way they do.”

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