Here are a few essential building blocks or steps for inducting the next generation:
We have very few family businesses that survived the second and third generation. They are the ones who patiently aligned their personal objectives with an effective succession structure. To ensure seamless transfer without hiccups, the next generation should have the appropriate skill set to manage the business. This requires a proper assessment of their current skills levels and developing a grooming plan to bridge the gap.
With the current generation realising the importance of training and grooming the younger generation, here are a few essential building blocks or steps for inducting the next generation:
The first step is to identify the skills that your successor needs to run the business. Determining those skills can be made easier by establishing or confirming the long-term goals of your business. For example, it requires a different skill set to hold the course for a business than it does to transform or reinvent it. The key is to understand the drivers of the business and to put an appropriate strategy.
An effective communication with the successor helps to determine what he or she really wants. The conversations shall help us to discover if the person is not prepared to upgrade his or her skills or consider leadership role. The existing owners should enquire about the long-term goals of the next generation. A facilitator or a family business expert is usually the best person to assess skill sets, identify gaps and hold informal chats in order to find out the aspiration of each of the family members.
The next generation should be eligible to take the right roles in business only after building their capabilities in terms of the requisite qualifications and the skills. In addition, the younger generations should be encouraged to gain work experience outside the family business, thereby providing them exposure and strength to deal with the complex challenges. The induction must be done meritoriously rather than just serving it on a platter to the family members.
The next generation should prove their mettle and climb up instead of being directly appointed at the top-level leadership position. Joining at the appropriate level would make it easier for the younger generation to understand bottlenecks, issues, and different dimensions of the business.
Ashish Bharat Ram, Managing Director, SRF once stated, “If a family member doesn’t have the passion or doesn’t want to take on the responsibilities to run the day to day business, he or she should ensure that they assume the role of a responsible family owner and should not interfere in business management.”
A good development strategy is critical to help the next generation to attain the required managerial skills and become future leader. An appropriate strategy must focus on some of the key issues like ownership skills, competencies, understanding the family values and the family business vision.
Since the first generation go through years of blood, sweat and tears, structuring and formulating a succession plan to induct next generation or professionals from outside can be an emotionally charged activity. Considering succession is an extremely sensitive matter, a facilitator or an outsider who has expertise in handling succession related issues can be valuable. A family business advisor can assist the current generation in setting up robust governance processes, constitution and other legal structures.
The author is the Co-Founder of Client Associates