At a succession crossroads, the key question to ask is: Are family members prepared to be owners of the family enterprise?
THEY PRIORITIZE THESE DEVELOPMENT ACTIVITIES:
Attend every meeting to which they are invited; prepare for and debrief after meetings with the help of board members, executives, and advisors
Contract tutors to learn to understand information provided such as financial statements, organizational updates, strategic plans, M&A opportunities, due diligence investment reports, and profiles of key executives or board members
Attend education programs, conferences, and networking opportunities related to the activities of the family enterprise
Get to know family members as adult peers to genuinely learn the interests, perspectives, goals, and needs of fellow owners
Path 2: Professional development
Individuals with professional careers in for-profit or non-profit sectors often gain skills and experiences through their work that are relevant to the role of owner. These individuals might be entrepreneurs following personal passions, or lead divisions or teams in companies, or be involved at a board or board committee level. They bring relevant knowledge and ideas to owner discussions in a credible way.
WHERE THEY OFTEN NEED DEVELOPMENT IS IN THE FOLLOWING AREAS:
Recognize the diversity of talent among family members without traditional Business backgrounds, and engage them to contribute
Gain altitude to connect the family enterprise as a whole in a coordinated manner, to leverage resources and align goals across the entire system
Develop patience to manage the coordination of multiple stakeholders for unified decision-making
Ensure a communication and information-flow strategy that allows all owners to follow key discussions on ownership topics
These individuals typically accumulate this training by way of mentoring by senior owners and trusted advisors, and by attending advanced courses on ownership governance and leadership. Individual coaching is also helpful.
Path 3: Family owner preparation program
Families sometimes provide customized development programs for family members who are on track to become owners. This helps all family members be exposed to the same information about historical and current aspects of the family enterprise. It also provides a team-unifying experience as family members move through the training together. These programs often start at a beginner level; over time, as the family’s familiarity with these concepts strengthens, the training steps up to intermediate and advanced levels. These programs are typically organized and funded by the family council.
As an illustration, the beginner level of an owner development program may last 1-3 years and include foundational topics such as these, taught in age-appropriate ways:
FAMILY ENTERPRISE RELATED
History of the family and enterprise
Family values and philosophical beliefs
Roles that family members can assume within the enterprise
Organizational structure, entities, and leaders within the enterprise
Governance structures and functions
Industry outlook: main competitors, consumer trends, potential disruptors
Social impact, philanthropy, and community-building activities
Short-term projects in the enterprise
BUSINESS & INVESTMENT EDUCATION
Basic governance: family, business, family office, and ownership
Basic business topics: finance,accounting, industry and market analysis, opportunity analysis, strategic planning, negotiation, leadership
Basic investment topics: asset classes, stock market, return, risk, liquidity
Personal finance: banking, budgets, saving, credit, mortgage, prenuptial agreements
Develop an ownership sucession plan
Generational transitions are complex with multiple components. They often take place gradually over a 10-year period, assuming there is no emergency that precipitates a faster transition.
Once family members are prepared for the owner role, ownership succession requires the eventual passing of:
- Investment Authority: decision-making about liquid or non-core investments
- Ownership Benefits: dividends and other perks of ownership
- Ownership Control: voting control over core business decisions
To prepare for these major ownership changes, meaningful orientation, discussion, and revisiting of agreements are necessary. The following areas, among others, are important to explore with new owners:
- Owners’ values, mission, and vision for the family enterprise
- Current ownership and trust structure
- Shareholder agreements and decision-making processes
- Liquidity plans for the family
- Reinvestment plans for the business
- Roles and responsibilities of owners
- Important stakeholder relationships
- Timing of ownership transition (by generation and branch)
Strong owners make strong family enterprises
Enterprising families are greatly aided when they spend adequate time understanding, discussing, and training for the owner role. Avoidance of this preparation can lead to lack of interest, lack of proper understanding, misbehavior, and lack of clarity on the part of management and the board regarding what the owners really want.
Your goal is to develop strong, capable, contributing owners in the next generation. If the next generation in your family is young, you have time to develop them with well-designed preparation programs–but start early. If the next generation in your family is not as young, it is not too late. Fast track the necessary learning and development for the owners.
This is one of the best investments a family can make for its future.