A Lasting Family Legacy

Successfully passing the business to successive generations is notoriously difficult, but with empathy, knowledge and careful planning it is possible for children and grandchildren to grow their inheritance for many years to come.

American philosopher and psychologist William James said ‘the great use of life is to spend it for something that will outlast it’, that is to leave a legacy.

For those who have spent their lives building a business, it may seem a forgone conclusion that they have already achieved this the goal.

Yet, passing your life’s work to the next generation can be fraught with difficulties and requires considerable empathy and flexibility from those involved.

Understanding conflict

All families will face conflict at some time or another, but for those operating within a business environment the frequency and ferocity of conflict will likely be more acute. The pressures of enterprise exacerbating traditional familial tension that is occurring outside of the office.

In their book, Family Wars, Grant Gordon and Nigel Nicholson argue: ‘It is especially hard to be philosophical about relationship problems when they seem to reflect on how we are perceived by others or how we see ourselves… Family wars generate a lot of their heat from the heavy interlacing of ethics, emotions and identity at all levels.’

Indeed, the very way in which family businesses shape the lives of the members within it can be the cause of conflict.

In Passing the Buck: How to Avoid the Generation Wealth Trap Simon Bloom explores the neurological, sociological and psychological factors which influence how respective generations interact.

Bloom explains that the fundamental characteristics which drive first generation individuals to build a successful business may also be the ones that lead to difficulties with their children and grandchildren.

Nowhere is this more apparent than when it comes to succession planning and passing the business on to the next generation.

The first generation view point

Having pioneered a successful business, it is clear that generation one is entrepreneurial and self-starting. They want to achieve something, regardless of where they have come from. They want to outstrip the last generation and will be highly driven, ambitious and have a will to succeed.

However, it is these characteristics which make generation one wealth creators so successful it can be overwhelming for others. Successful business people have an ability to identify strengths and weakness in others which can be belittling for family members if they are on the receiving end of criticism and have not achieved an appropriate level of self-esteem.

Sometimes first generation individuals do not believe their offspring are capable of making an ongoing success of the business.

And given the personal and material investment they have dedicated to building up their business, it is understandable that generation one may be anxious about passing the reins to the next generation.

But it may be first generation individuals have failed to appreciate the positive characteristics in their offspring and sometimes have been so focused on their business they may have neglected the children.

Our beliefs, values and behaviours are a consequence of our neurological structures which have developed in response to our unique personal circumstances.

The second generation will have grown up in an entirely different set of circumstances to their parents. They were born into success and wealth, and their neurological development cannot mirror that of their parents.

Consequently, generation one may have assumed their child would emulate their skillset when they are confronted with the reality, and could be unwilling to relinquish control to generation two.

Gordon and Nicholson write: ‘Instances are legion of patriarchs refusing to hand over control to their middle-aged children. They never stop believing that they know best’.

The belief that they know best may prevent the first generation from truly seeing the second generation’s strengths. Only by understanding the differences in their children and helping them build confidence, skills and strengths can a successful succession take place.

The second generation view point

Being the children of high achieving parents brings both advantages and challenges. Of course there are the trappings of wealth, nice homes, luxury holidays, private education for example. But second generation individuals may question their own abilities when comparing their achievements to those of their parents.

This is particularly likely if they measure success in terms of money; how can they possibly match up to someone who has created a multi-million or billion pound business? This concept is explained in more detail in an earlier blog post – ‘Helping your child to love their life. 

As explained in Passing the Buck, second generation individuals – in general – tend to more cautious, and conservative in their nature. These traits may be entirely suited to continuing the success of the business and in preserving wealth, yet, generation one may perceive this reluctance to take risk as being less creative and a weakness.

The second generation may also lack self-esteem if generation one has failed to encourage them to strike out on their own. If their life is funded by an allowance rather than through hard-work, for example, it is difficult for second generation individuals to demonstrate their own self-worth.

For the second generation to thrive as heads of the family business it is important the build self-esteem, to believe in their own ability and recognise that emulating their parents is neither necessary nor desirable.

First and second generations need a structure in place that enables children and grandchildren to develop their own strengths which will allow them to make a positive contribution to the business.

For succession to work effectively, the two generations – and indeed all successive generations – need to recognise and celebrate their differences.

Seeing eye to eye

When working with family enterprises to create successful succession plans, the starting point is to make an honest assessment of whether the business can remain in the family.

Does the second generation want to take control, are they adequately equipped to do so?

If the answer is yes, then planning needs to start early. Writing a three-five year transition plan can help clarify how the business should be managed and by whom.

For the second generation to really make a success of the business, the first generation needs to encourage a sense of self-esteem in their offspring.

Successors need to feel they have ownerships of the business; that they are included in the plans and process.

Communication needs to be open and consistent so successive generations understand their importance giving the first generation confidence that they children and grandchildren are equipped to take over the business.

The first generation also needs to recognise that the business will change. As more family members are involved in the running of the business – including spouses – the enterprise will no longer resemble the initial single family office it was at outset.

Ultimately both generations need to be willing to adapt and evolve to make the business an ongoing success. By working together and acknowledging each other’s strengths and weaknesses it may be possible to avoid the generational wealth trap and grow the business for the future.

Stopping conflict before it starts

  1.  Honestly assess whether second generation is willing and able to take over the business.
  2. Put a clear process in place setting expectations for all parties.
  3. Recognise and accept others strengths and weaknesses.
  4. Allow the second generation to achieve their own goals.
  5. Accept the business must evolve and adapt as it moves through generations.

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