By Professor John A. Davis, Cambridge Institute for Family Enterprise
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As they seek to perpetuate their legacies, family businesses benefit from learning about succession planning together.
Foreword by Money K, Global Head of Next Generation, Citi Private Bank:
John Maynard Keynes – the great British economist – believed that family companies followed a three-generational cycle. “A man of energy and imagination creates the business,” he wrote, “the son coasts along and grandson goes bankrupt.” Modern studies suggest Keynes may have had a point. According to one study, just 10% of family-owned businesses are still active, privately-held companies for the third generation to lead.
So what may lie behind this low survival-rate? Rather than typical reasons for corporate demise – such as fierce competition or insufficient resources – internal family issues may be the leading killer of family businesses. These include family conflicts, a lack of family governance structures and processes, and inadequate succession-planning and preparation of the next generation.
As part of our efforts to help families preserve and grow their family businesses for the long term, Citi Private Bank organizes the Business Families Spring Summit. The annual event is chaired by Professor John Davis, a renowned authority in the sustainability of family enterprises. Here, Professor Davis outlines the format of the event as well as the key principles for succession-planning:
The Business Families Spring Summit is an annual program jointly offered by Citi Private Bank and Cambridge Institute for Family Enterprise to the family clients of Citi Private Bank. It is a three-day program uniquely designed for families that own and lead operating companies and family offices around the world. Now entering its fourth year, more than 38 families from 20 countries have been represented. We encourage families to attend in groups; most do. Memorable conversations take place—in and out of the classroom sessions—when senior generation and next generation family members step away from the day-to-day operations of their companies, and focus on what matters most to them: the future of their families and the perpetuation of their legacies.
The Summit is modeled after the flagship program that I chair at Harvard Business School, called Families in Business: From Generation to Generation, a six-day course for multigenerational families, which is entering its 20th year. The Summit addresses a range of topics, deliberately chosen to stimulate long-term planning for a family enterprise. From family governance to family communication, and from succession planning to next generation preparation, the participant families devote themselves to lengthy days of rich learning, discussion and networking. Outside of the classroom sessions, each family has a private meeting with an advisor, who is experienced in family business, to dive deeply into the issues of most interest to them–be it future strategies or short-term crisis mitigation.
Most of the families that participate in the Summit are experiencing an important transition: typically, either the growth of their company requires new management and governance systems, or they are embarking on a generational transition of passing management and ownership of their companies to the next generation. What all of the families share in common is a keen interest in keeping their families united and committed to what the family has been successful at perpetuating.
It is important to describe how we at Cambridge Institute for Family Enterprise think about and advise families on generational transitions. Below are the five principles for succession planning that I share with families at the Summit:
The most important of these five is #3, the preparation and development of the next generation. Without a competent and motivated next generation, a multigenerational family can lose everything. Most critical is to stretch your next generation talent through challenging assignments inside the business, family office, family foundation, or through an entrepreneurial venture. Set performance goals and incentives; provide useful feedback; keep the momentum. Remember too that the next generation will also one day lead the family, requiring that they develop the emotional intelligence to earn the respect and trust of family members outside of the business.
The families that have succession conversations—early and often—increase the likelihood of a smooth handoff to the next generation. The Business Families Spring Summit is a helpful launchpad for many families to begin planning. But regardless of the forum, I encourage you to start these conversations in your family today.
Dr. John A. Davis is a globally recognized authority on family enterprise, family wealth, leadership, and succession. His insights, lectures and writing have helped to develop business leaders, professionalize enterprises, strengthen families, and pass sustainable enterprises to the next generation. He is founder and chairman of Cambridge Institute for Family Enterprise , and co-founder and chair of the Families in Business program at Harvard Business School. Learn more at johndavis.com and follow him on Twitter @ProfJohnDavis.
The opinions expressed by the speaker(s) during the course of this article are those of the speaker(s). These opinions may differ from the opinions expressed by Citigroup Inc. and its affiliates.
 Avoid the traps that can destroy family businesses –Stalk and Foley, Harvard Business Review, January-February 2012.