Can you guess the number of family businesses in the U.S.? How about 5.5 million!
Some famous names include Aldi, Mars and MSC Cruises.
Other familiar names are publicly traded companies where the founding family owns a controlling interest. Examples are Volkswagen AG, Dell Technologies and Tyson Foods. How can family members bring newer family members into the firm?
As a financial advisor, you have another interest in this topic. Bringing your child into the business and gradually transitioning your book is a time-honored tradition of “keeping it in the family.” In this case, the financial advisor considers “their book” as the family firm and wants to pass it on to the next generation.
How do you bring the next generation on board?
There are many ways to introduce the next generation into the family firm. Here are a few:
- Start at the bottom. You see this in films all the time. Family members start out working in the warehouse or on the factory floor, learning the business from the ground up. The most famous family firm of all time is likely the British Royal Family. Most family members serve in the British armed forces in their younger years. In my former firm, a similar tradition of “starting from the bottom” was in place, at least in our office. The child of an advisor needed to start off as a new advisor, in the training program and working in a different office. They needed to build a book and successfully complete the training program before they could work alongside their parent.
- Follow someone around. You would never throw your child into the deep end of a swimming pool, expecting them to suddenly know how to swim. This is true in business too. A younger family member might be assigned to an executive in a department for a period of time, gradually rotating through the firm. The executive teaches them as a mentor, as the family member sits alongside them, learning about that aspect of the business.
- Start at a similar firm. In the French wine business, it is common for the next generation, after completing college, to work in another winery elsewhere, perhaps in America. They learn new techniques that they can bring home to the family firm. This serves to continually refresh the family business, so it does not get stuck in the past. They are working at a similar firm, but not a direct competitor.
- Start with philanthropy. The family is wealthy because the business has made it wealthy. They feel an obligation to give back to the community. These families often have a family foundation. Regardless of whether it is large or small, involving the next generation in charitable-giving decisions makes good sense. They seek out worthy causes along with evaluating requests for contributions. They make the connection that there are more good causes than money to spread around, meaning they must make difficult decisions to prioritize their generosity. The family member makes the connection: For the foundation to expand its generosity, the family firm must both survive and expand. They have a role to play in making that happen.
- Learn a skill, then apply it. Wealthy families often send their children to the best schools. They get a top-notch education in a field complementary to the business. For a manufacturing company, it might be information technology. The family member returns from school with a skill that will help prepare the company for the future.
What about children who do not want to go into the business?
How many firms can you name where the family patriarch faces the problem of the child who does not want to go into the family business?
Bring in outside leadership. Marriott is considered an excellent example of a firm that brought in non-family members for top positions at the firm bearing the family name.
In your client’s case, family members might serve on the board or with the charitable foundation but are not involved in the day-to-day running of the firm. (Marriott family members are involved!)
Make working at the firm more attractive. Perhaps the children have enjoyed a privileged upbringing because of family wealth. You have seen enough films about playboy offspring. They want to live the good life, but not work for a living. As I recall, there was a line from an old episode of The Avengers: “Tried working once. Didn’t work out. Too much like work.”
What can parents do? They might help adult children who live on their own, but their “allowance” is gradually reduced. Or they might tell their children that they need to earn their own money. Gradually, the idea of working at the firm might become more attractive.
They have genuine talent. We are all given gifts in life. One child might have the potential to be an Olympic athlete, another a great artist. The key factor is talent is obviously present. Developing that skill as a gift to the world may take precedence over taking a role in the family firm. It isn’t charity, but a different sort of social investment.
The key takeaway is succession needs to be planned; it should not be an assumption or an afterthought.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon.