Family businesses are a “major component” of the global economy – and it is the responsibility of today’s leaders to nurture those of tomorrow, writes Peter Englisch for Strategy+Business.
Last year, the world’s 750 largest family businesses boasted combined revenues of US$9 trillion and employed approximately 30 million people, according to research conducted by Family Capital with the support of PwC. To put that figure in perspective, global GDP is estimated to be approximately US$86 trillion, according to the World Bank.
Family, in business as in life, is important. The future success of these family businesses depends on the next generation – “NextGen” – of leaders, who are more often than not family members.
PwC’s 2019 Global NextGen Survey of 1,000 aspiring leaders across five continents and 11 industries suggested that the NextGen often feels “constrained” and ignored, with only 36% being used as a “sounding boards” by current leaders.
Just 48% of NextGen leaders have been given responsibility for a “change project or initiative” and 50% of current leaders plan to wait at least six years before relinquishing control of their business.
WHO ARE THE NEXTGEN LEADERS?
Most NextGen leaders will be the second or third generation to join the family business. These individuals are overwhelmingly millennials, with more than half of them between the ages of 25 and 34. “As is true of their fellow millennials, NextGen leaders do not lack confidence,” writes Peter Englisch.
Two-thirds are male, 70% are already “deeply engaged” in their companies, 41% expect to be an executive director, 29% expect to be the majority shareholder within five years, 70% identify problem-solving and leadership skills as both essential to their company’s future success and their strongest attributes, and almost two-thirds believe they can ensure their company is “fit for the digital age”.
THE FOUR PATHS TO LEADERSHIP
PwC’s 2019 Global NextGen Survey shows that NextGen leaders follow one of these for paths to leadership: transformer, steward, intrapreneur and entrepreneur.
“Transformers aim to remake their companies, and they are confident in their leadership and problem-solving abilities,” writes Peter Englisch.
These individuals are less likely than other NextGen leaders to believe it is necessary to experience working in a number of roles across the business (17% versus 23%) and are most likely to aspire to executive roles within five years (56% versus 41%).
Forty-six per cent of NextGen leaders fall into this category.
TEN WAYS CURRENT LEADERS CAN SUPPORT TRANSFORMERS
1) Increase transparency. Share as much information as possible.
2) Talk openly about change. Discuss how the business hasto adapt to survive.
3) Strengthen corporate governance. Prepare for the day when transformers take over. For example, a more open-minded board willing to accept risk might be required.
4) Mentor. See the development and guidance of transformers as a long-term process.
5) Instil a culture of openness. Encourage a culture where mistakes are admitted and lessons learned.
6) Understand the perspective of the current generation. Provide constructive criticism but also ask more questions and learn.
7) Innovate. Be prepared to act quickly.
8) Show gratitude. Show respect for the NextGen.
9) Expand your horizons. Embrace collaboration and look beyond your traditional competition.
10) Qualify and track progress. Review regularly and learn from your mistakes and your successes. Is transformation creating a competitive advantage?
“Stewards are strongly focused on their company’s existing markets and are likely to view social and environmental factors as drivers of change for the business,” writes Englisch.
These individuals are likely to be older than other NextGen leaders, with many above 35 (42%, versus 36%). They are drawn to management and nonexecutive roles.
Twenty-eight per cent of NextGen leaders fall into this category.
FIVE WAYS CURRENT LEADERS CAN SUPPORT STEWARDS
1) Communication. Clearly articulate your expectations.
2) Set out clear, shared values. What are your values?Invite the NextGen to participate in framing them.
3) Allow the stewards to be themselves. Provide opportunities for stewards to develop in their own way.
4) Give stewards opportunities to learn from you. Grant stewards access to your inner circle.
5) Avoid excessive pressure. Focus on motivation.
FIVE WAYS STEWARDS CAN CONTRIBUTE
1) Don’t take your role for granted. Be mindful of other people.
2) Know your background. Understand the company’s history and values.
3) Realise that you don’t have to know everything. Listen and ask questions.
4) Find your own motivation. What does the business mean to you?
5) Think beyond the traditional. You are the future. Keep up with current trends.
“Intrapreneurs tend to view their company as desperately needing a more entrepreneurial culture,” writes Englisch.
These individuals might, for example, work on developing new products, like William P Lauder, grandson of Estée Lauder, who developed the successful Origins skincare line.
They are more likely to feel like they need to prove themselves before presenting their ideas for change (27% versus 21%) and their focus is attracting new talent and developing digital strategy.
Twenty per cent of NextGen leaders fall into this category, with more than half operating in the Asia-Pacific region.
NINE WAYS CURRENT LEADERS CAN SUPPORT INTRAPRENEURS
1) Accept risk taking. See mistakes as opportunities to learn.
2) Take opportunities. Provide intrapreneurs with opportunities to manage their own projects within the business.
3) Mentor. Become a teacher as early as possible.
4) Promote values. Work with intrapreneurs to define values.
5) Innovate. Be open to opportunities presented by new technologies.
FOUR WAYS INTRAPRENEURS CAN CONTRIBUTE
1) Take opportunities. Seek out opportunities and use the business’s resources to make the most of them.
2) Strengthen knowledge. Become an expert in the markets you want the business to enter.
3) Align values. Your venture’s values should align with those of the company.
4) Innovate. Seek out new technologies that could benefit the business.
Entrepreneurs are more sceptical about their business’s performance in comparison to its competitors than other NextGen leaders (20% versus 9%), with 19% believing their business lacks a strong sense of purpose.
“They are more likely to feel their suggestions are ignored and less likely to see themselves as future leaders of the business, even though they want to lead a business,” writes Englisch.
Eight per cent of NextGen leaders fall into this category.
TEN WAYS CURRENT LEADERS CAN SUPPORT ENTREPRENEURS
1) Prepare for multiple opportunities. Be open-minded. Accept entrepreneurs might want to go it alone.
2) Support their ambitions. Grant entrepreneurs time to work on their ideas and provide support.
3) Broaden their work experience. Allow entrepreneurs to work with outsiders.
4) Respect different life choices. If you invest in an entrepreneur’s venture, treat it like any other investment.
5) Have faith in their ventures. Let entrepreneurs know they are not being disloyal.
FIVE WAYS INTRAPRENEURS CAN CONTRIBUTE
1) Stay connected to your legacy. Learn all you can from the family business.
2) Acquire knowledge. Learn everything you can about the market you want to enter before making your move.
3) Create a vision. What is the purpose of your venture? Does everyone involved understand what you are trying to achieve?
4) Seek support. Ask for your family’s advice.
5) Trust yourself. Be confident.
PUT YOUR TRUST IN THE NEXT GENERATION
NextGen leaders have the outlook and the skills required to tackle the challenges ahead, for example fierce competition, evolving customer needs, disruption caused by new technologies and economic uncertainty.
“Before NextGen leaders can address these challenges, however, they must win the trust of today’s leaders and earn a licence to operate at the top level,” writes Englisch. “And today’s leaders must recognise the NextGen’s digital and leadership skills and find more effective ways to help them make the transition to a senior leadership role.”
Will these leaders of tomorrow fulfil their potential? That’s down to you.