Preparing the Next Generation: Is it really necessary to work outside of the family firm?
The key to continuity of a family business is the involvement and engagement of future generations of owners and stewards. One of the ways that this involvement can occur is through an active role in the business. In our interactions with family business owners one of the most common questions that we get asked is: “how can we prepare the next generation to be successful within the family firm?” Many advisors and coaches suggest that for a next generation member to be successful in the family firm, they need to first work outside of the business for three, five, or even more years. In reality, there is no data-substantiated evidence for this claim.
Those in support of the argument claim that without outside experience, family members lack realistic and constructive feedback that enables them to become better at what they do. They argue that outside work enables family members to gain specific knowledge about themselves and unique skills for the business. However, there are at least two flaws to this argument. First, this approach generally fails to acknowledge where the next generation stands in their personal and professional journey, and the capability of the organization to be a fertile ground for next generation learning. Another flaw is that when the next generation goes outside of the family firm, there is a risk that they will not return to have an active role in the management of the business. Preventing a family transition. There are many successful family businesses executives today that have never worked outside of their family firm; Bernard Arnault of LVMH Moët Hennessy – Louis Vuitton SE being an excellent example. Thus, there are other ways to help next generation members be successful within the firm.
It may be that family business owners are not asking the right question before requiring the next generation to work outside the family firm. Instead of focusing on the broad ‘how’ (i.e., how does the next generation become successful?) a better, more specific question may be, “what do next generation members need to learn so they can become successful within their family firm?” This second question can help assess the capabilities and competencies required to successfully perform a role and determine different ways to learn them.
Our research suggests that the success of a next generation family member is related to the development of competencies in four general areas:
1. Business: These include task (i.e., how to do the job) and social (i.e., how to interact with others in the work environment) competencies that help individuals perform well within the business system. Included within this area is having knowledge in operations, finance, strategy, and the culture of the business to help the family business succeed. Competencies like these can be learned through educational programs or through peer groups and mentoring with internal and external mentors. For example, young family board members benefit from being mentored by a seasoned independent director; those who lack an in-depth understanding of finance find value in sitting down with the CFO prior to a board meeting to go over the financials.
2. Family: Competencies in this area help individuals learn how to manage the family system and how to relate with all family members. The goal is for family members to understand the family values, needs, and goals, how to manage family relations, and to have knowledge of the family system in general. This knowledge is necessary to help the family remain together and functional as a decision-making unit and is often learned through family mentorship or through peer group experiences. Such competencies help making communication more effective, and to deal with conflict more constructively.
3. Ownership: The third set of competencies include knowledge and skills about the formal and informal governance of the family and the business, and how to work together to ensure that the goals and desires of a particular family are reflected within their actions as an ownership group. This helps next generation members contribute to the family continuity through decisions and actions as an owner in the firm. Dedicated programs, such as the Loyola Family Business Center stewardship program, supports family members on this learning journey.
4. Personal: Competencies in this area combine the knowledge, skills, abilities, and other characteristics that help the next generation member understand their environment and use this information to analyze the situation and their point of view to find ways to successfully navigate the family and business contexts. These include decision-making, critical thinking, boundary management, communication, and managing personal conflicts to mention a few. These competencies can be enhanced through work with personal coaches, or through specific leadership training programs.
Next generation members can gain competencies in these four areas through many different, and ideally, a combination of experiences. For example, having an inside mentorship program that helps family members learn about the procedural areas within the business and the culture of the company can help a next generation member become more competent about the family’s particular business. At the same time, the next generation can be involved in educational programs that can help enhance their knowledge in finance, operations, marketing, or other areas that are held within the industry, or executive university programs. Some families, such as the Merck family of Germany even have a Merck family university where every other year, family members learn key competencies related to the family business system.
Planning for the future of the family in the business should not focus whether the next generation should work outside of the firm. Instead, it should focus on what the next generation needs to learn, and how can we help them gain this knowledge in ways that enhance the future of the individual, the family, and the business.
