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  • Family businesses need to bridge three key gaps for clean succession-PwC study

    Published on April 15, 2014

    Family businesses need to bridge three key gaps, namely generation, credibility and communication, to ensure clean succession. The new research from PwC talks to more than 200 next generation family members likely to take over the family businesses in 21 countries worldwide.

    Bridging the gap: Handing over the family business to the next generation focuses on the issue of succession: how family firms are planning for this, how the next generation views this, and the challenges all family firms face in implementing this.

    According to the report, one word that crops up repeatedly in the research is ‘gap’:

    The generation gap between the current generation and the one in waiting

    The credibility gap the next generation can face as they struggle to get established, and

    The communications gap that can open up between parents and children at whatever age and even in the most successful businesses.

    Those who run family businesses have to operate on two different but related levels – as managers within the business, and as members of the family. Family business owners have to meet their responsibilities to employees, run the business successfully and also handle family dynamics.

    Indraneel R Chaudhury, Private & Entrepreneurial leader, PwC India said that, “Globally, only 12% of family firms make it to a third generation, and only 1% beyond the 5th. The transition from one generation to the next is a potential fault-line which can make or break the business. Indian family businesses can take some guidance from how their counterparts globally (mainly in Europe) have passed the baton from one generation to another. As family businesses are a key component of Indian economy, many are experiencing growth and are grappling with issues relating to managing the generation gap between family members, the next gen trying to prove themselves to the family, customers and colleagues, and communication gaps between generations who own and manage the business.”

    The research further states that 88% of the next generation say they have to work harder than others in the firm to prove themselves, both with colleagues and customers: 59% consider gaining the respect of their co-workers as one of their biggest challenges. Also, many of the next generation we spoke with have worked in another business first, as a way of establishing their credibility.

    The current generation is not always confident that their children are ready and able to take over, and more family firms are bringing in external CEOs.  The next generation can also no longer assume they will run the business one day: 73% of those likely to take over the business one day said they are looking forward to doing this, while only 35% thought it was definite, and as many as 29% thought it only fairly likely at best.

    Family businesses have to manage personal as well as professional relationships, and this brings with it the possibility of conflict: 22% of the next generation are concerned about working with family members, and understanding the family dynamic. It is also important that as management shifts from one generation to the next, the older generation needs to understand the difference between ‘influence’ and ‘control’.

    The key is clarity of roles and responsibilities, and openness in communication, especially in relation to succession planning, where an independent mediator can help bridge the gap, and ensure the next generation is prepared to succeed. Our report will be of value to family business enterprises who are keen to learn more about the issue of succession, an issue that has to be handled with foresight and also with some degree of delicacy.

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