The process of onboarding the next generation into a family business can be both fulfilling and challenging. In many cases, the NextGen feel that they have been a part of the family business for their entire lives, and taking their place within the company feels natural. Hearing about the business at the dinner table and actually working in it are two entirely different experiences, however. The reality is that officially joining the family business can be downright intimidating. The successors not only face the pressure of the working generations’ expectations but also are subject to increased scrutiny from non-family employees as well as customers. They have a lot of eyes on them, and there is a lot to live up to.
Often, premature assumptions and comparisons are made by founders, executives and other family members before the successor has had time to hit their stride. Sometimes, there is the added pressure that the successor is presumed to be the future leader of the business. Regardless of the scenario, it’s essential that a number of factors are considered to ensure that the onboarding process is successful and achieves the objective of firmly establishing the capabilities of the successor, putting in place a clear path for the future.
Today, most families in business are cognizant of the fact that the NextGen needs to be adequately qualified in order to participate in the family business. This article assumes that the successor has the educational qualifications and the desire necessary to join and contribute. Dealing with differently qualified or reluctant successors requires a totally different approach. It is recommended, therefore, that family businesses develop a clearly articulated policy for family employment and adhere to it. Many require family members to work in an outside organization for a minimum of three years before entering the family enterprise, as an example.
One of the first questions that needs to be answered is, “For what position is a successor being groomed?” Some argue that this should happen before an heir is asked to join the family business. If, for example, it is known that the successor will never occupy the top executive role, as that is reserved for someone else, this needs to be made clear to them from the outset to manage their expectations. It is also important to be clear whether the heir would eventually play the role of an executive within the operating company or move into a strategic board-level role outside of the executive suite.
Whether the end goal is chief executive or somewhere near the top of the organization, it is important for the successor to understand the business in order to be adept at leading in the future. It must be determined, then, what is critical knowledge, without which managing the business will be impossible. These should be no more than three or four areas. The rest, though important, can be managed with common sense, the use of advisers, competent employees and so on.
These critical areas are where the successor should focus. Some families start the NextGen on the shop floor, with a plan to work their way up through the ranks, in order to understand the entire business. Others rotate the next generation between departments every few months to get an overall, albeit cursory, understanding of the business. While all methods of providing learning are important, it is equally important for the heirs to have the ability to deliver tangible results and experience success on the job. This needs to be kept in mind in determining the roles and responsibilities for the next generation.
Sometimes a member of the NextGen does not want to participate in the operations of the existing family business but still wants to contribute to the business of the family as a whole. In these cases, they might ask, or be encouraged, to create a new line of business as an extension of the family business. They might also choose to work in the family office or request funding from the family office to create a new source of revenue — and pride — for the family.
Another important aspect of introducing the NextGen to the family enterprise is financial remuneration and title designation. It is essential that members of the next generation receive appropriate compensation for their position. Too high a remuneration gives the message to the rest of the employees that family heirs are “special,” and opens them up to resentment. On the other hand, paying a family member less than market value might make them resent working for the family and cause them to look elsewhere for employment. The same is true for title designation. In deciding title, it is important to recognize that giving a young family member an elevated title that is not commensurate with their experience can cause resentment. Still, it is also important that the heir feel valued and empowered to succeed since they are presumably the future of the company. Establishing the right balance can be tricky, but it is necessary to the successful onboarding of new family members.
Creating a family council, where all family members over a certain age are given regular updates on the status of the business, can help achieve this balance. Participating in the family council allows the next generation to receive high-level information about the entire business even if they are not yet privy to that information in their specific role in the company. It sets them up for success while also allowing them to work their way through the ranks. For this reason, it is very important for family businesses, especially those encompassing multiple generations, to establish a family council and use it to keep all family members informed and engaged.
Another condition that is important to the successful onboarding of the NextGen is receptivity to ingenuity and change. While older family members have tremendous institutional knowledge of the business, it is important to allow for new and more modern practices that will surely be suggested by the next generation. Older generations should not try to micromanage or quash new ways of managing the business as a means of maintaining control. They should trust that the young family members also have a vested interest in the long-term viability of the business and should be encouraged to generate new ideas, test their ideas on a small scale and then be empowered to scale the ideas. It is crucial to the ongoing success of the family business that successive generations feel invested and affirmed.
Despite best intentions, there are certainly instances in which a member of the NextGen fails to launch and thrive within the family business. Whether they determine themselves that they don’t have a passion for the work or the family executives determine that they are not contributing to the company’s success, there needs to be a considerate process that allows the heir to exit the business in a manner that is not detrimental to the family relationship. Perhaps this is the opportunity for that family member to start something of their own under the family business umbrella, or choose to work within the family office, or participate in philanthropic efforts on behalf of the family, or just look for a career apart from the family. No matter where they land, it is preferable to make the exit as amicable as possible to preserve the family relationship. Family business relationships that end badly can create disharmony for generations.
Ultimately, the entry of each new generation into the family business offers tremendous opportunity, even with the accompanying challenges. Every new member of the NextGen brings with them a fresh perspective and a new level of energy. They have had the benefit of growing up with the business, so they know the context and can hit the ground running. And unlike new employees who are not part of the family, the NextGen is motivated by preservation and growth of the family legacy. Done properly, onboarding and motivating the NextGen is the key to the lasting success of any family enterprise.
Christina Wing is a Harvard Business School faculty member and founder of family business and family office advisory firm Wingspan Legacy Partners.
Rohit Gera is senior advisor and co-founder of Wingspan and managing director of Family-Business Gera Developments Pvt. Ltd