Co-written with Robbie Cowan, Principal Advisor, MDR Mayfair.
Beyond legal and financial aspects, the emotional weight of transferring wealth across generations is a significant yet under-discussed aspect. In today’s landscape where disruptive technologies and global shifts rapidly redefine wealth creation, the transition of wealth remains a deeply personal matter. Dealing with the weight of inheritance and quest for continuity will require that these emotional aspects are addressed if the best outcomes are to be achieved.
Is it possible to be objective about family?
Succession planning in family businesses demands a delicate balance between the requirements of the business and the emotional dynamics of familial relationships. Founders may find themselves in a tough spot when they start to evaluate potential successors among family members. While there may be a natural or cultural inclination to pass the torch onto the first child or any other member of the next generation, it’s essential to objectively assess if they possess the requisite skills, temperament, and vision to lead the business successfully. Although an evaluation process can be fraught as family dynamics and expectations come into play, a process that is made clear in advance and is seen to be fair and objective, is more likely to lead to an outcome that is accepted by all.
The incumbent generation also needs to be aware of intergenerational differences in attitudes towards work, risk-taking, technology, and leadership, adding further complexity to the decision-making process. Decision-makers need to consider how these aspects may trigger their own assumptions and biases thereby impacting their thinking and judgement. For example, it is often the case that the next generation may perceive the older generation as resistant to change or overly-controlling, whereas they may view the younger generation as lacking the necessary drive or experience. These perspectives are often rooted in the different life experiences of each generation. A clear, demonstrably fair and data-driven process, not only helps align the family members behind the decision, but also helps the decision-maker avoid the pitfalls of an overly subjective approach.
Emotions can have a real impact
The weight of determining the future of a family business, especially if this is the key generator of the family’s wealth, is often a major focus for family business leaders. Not only do they have the responsibility of making the right decision for the business, they are also having to manage their natural parental aspirations and expectations of their children. Add family dynamics to the mix and the task of making the right decisions becomes even more loaded. This is when a family leader or founder could well use the support of professional advisors. Accountants, lawyers and psychologists may all have a role to play helping family leaders to stand back from the competing pressures, allowing for decisions that are right for both the business and for the continued wealth and success of the family through the next generation. While business leaders are accustomed to taking advice from lawyers or finance professionals, they may be less aware of the value of adding a psychologist to their team of advisors. Psychology input adds an important dimension to how they might address the succession question including:
- Managing the competing emotional tugs and pulls.
- Identifying the hopes, dreams and fears they have for their children.
- How to evaluate the leadership requirements of the business and match those to the capabilities of family members.
- Understanding generational differences, what these differences can offer, and mitigate what may be the downsides of these differences.
- Create a psychologically safe space for family members to openly discuss succession matters and agree upon the principles that should govern succession decisions.
- How to navigate the possible hiring of non-family successors.
Start early and think broadly
Effective succession planning goes beyond simply identifying a successor. Leading the family business often goes hand in hand with leading the family itself. Defining the boundaries between the business and the family, having in place the leadership skills, the personal disciplines and the appropriate governance structures, will all help underpin the success of any leadership transition. A transition plan should be considered well ahead of the actual transition and can serve as a check against each of these aspects. Where there are gaps these can then be addressed, preparing the ground for the new leader. This may include a two-way commitment for professional development and mentorship.
How to leave the family business in the best possible hands, is therefore not just a question of making the right choice of successor (important though this is) but also one of ensuring that the family and the business are properly prepared for the transition.
Soft rules can guide the way
What if one does not have an (obvious) family member successor, and yet the family and especially the next generation still want to remain close to the family business, and indeed are likely to still be significant shareholders. Very often non-family CEO’s are appointed to take control of day-to-day operations and management, with key family members remaining Board Directors. If there are the right soft rules in place which guide the behaviour and conduct of working and non-working family members, a business run by someone outside the family can continue to reflect the family’s ethos and values. Importantly, with the right governance structure in place the family shareholders can still have oversight and the ability to weigh-in on major business decisions.
Conclusion
Taking account of the complexities and the emotional load, means that key decision-makers are better able to navigate the succession challenge. Implementing a clear and demonstrably fair process, engaging openly with their family members, taking external advice, and preparing the succession pathway in advance of the actual decisions being made, are all key success factors. This maximises the possibility of making the best decisions with the agreement and buy-in from family members, reducing the risk of later disputes. It is also an opportunity for transformation and growth, a successful transition not only breeds resilience but stands as an example for both the current and future generations.
AUTHOR BIOS
Dr Perpetua Neo (DClinPsy, UCL; MPhil, Cambridge) works with leaders and their organisations to exceed their KPIs without burning out, using a signature blend of neuroscience, ancient wisdom and psychology. She serves a global clientele across six continents, including UHNW and HNW families. DrP splits her time between London and Singapore, and is a Simon & Schuster author.
Robbie Cowan (MA Clin Psych; AfBPS) is a psychologist and advisor to international families and leading organisations. With a deep understanding of business and psychology he assists families and family businesses plan for the future, and build their continuity roadmap. He has a specific interest in governance and succession planning. Robbie is a Principal Advisor at MDR Mayfair with offices in London, Dubai and Singapore.