How Do You Keep Businesses In Families In Changing Times?
Many business owners want to keep their family business within their families. But demographics and generational issues are making that tougher. Companies are often heirless, or their next generation is not ready to take over. Of course, procrastination is still a problem, too. According to a 2023 study by […]
Many business owners want to keep their family business within their families. But demographics and generational issues are making that tougher. Companies are often heirless, or their next generation is not ready to take over.
Of course, procrastination is still a problem, too. According to a 2023 study by PwC’s Global Family Business, nearly two-thirds (61%) of family business owners do not have a written, formal succession plan in place, even though 72% of them said they want the business to stay in the family.
Jill Shipley works as a consultant helping such families in her role as head of governance and education at AlTi Tiedemann Global. She’s well aware of the statistics about succession plans, and the challenges baby boomer family business owners face in passing their life’s work to heirs.
“They are so afraid to think about their death and plan for it,” said Shipley. But the problem with putting it off, she said, is that they are often later forced to do crisis management.
Shipley deals with business owners who in some cases don't have heirs or where generational trends are frustrating their plans. While some heirs aren’t ready to step in and run a business day to day, others just aren’t interested in the family business in the first place. It might be that the founders have encouraged their children to find passions outside the family trade.
“When you look at the way parenting styles have changed … the rising generation is much more interested than their parents and grandparents in finding work-life balance and in finding meaningful work,” Shipley said. “And their parents are encouraging them to find what they are excited about and how they can contribute to the world in a meaningful way.”
She further noted that younger generations who have seen their parents working long hours and on weekends aren’t attracted to that lifestyle.
In many cases, the owners instead turn to outsiders: Shipley said she is seeing more owners hire professional management to oversee their business while still giving stakes to the next-generation and future generation family members so they can benefit financially from the dividends of the business.
However, “good governance is the only way that works,” she noted, since there’s often tension between managers and inheriting owners. “You can understand how [frustrating] it would be if you are responsible for the day-to-day management of the business and you have next-gen owners that have no sense of what is actually happening in the day-to-day management of the business—but because they are owners, they want a voice.”
She says many times she has seen family members step in and get involved in the plans of managers simply because they want their voices heard. “The only way that can work is if you separate what are the management’s decision and what the owners have authority over,” she said, adding that, “you never want to have a family owner that does not understand the day-to-day of the business.”
Having a governance model in place quells that tension, Shipley said. That means creating a board with a mix of business owners, family members and independent members, with the board having clear authority on certain issues, she said.
Financial advisors, Shipley said, bear responsibility for ensuring that their business owner clients have a succession plan. “We are in a unique position to nudge business owners to talk quarterly or at least annually about putting a just-in-case plan in place so that if, God forbid something happens to them, there is a solution and the business can stay operating,” she said.
“Often, when there is no plan, the best thing that can happen is for the business to sell,” she said, even if it’s not what the owner would have wanted. “And that’s why I really think having advisors play a significant role in how to proactively plan is important.”
Business owners also need interim plans, she said, to protect the interest of next-generation members who are either too young or unprepared but want to be future leaders in the company.
“The opportunity we have is to say, ‘Yes, it’s hard to talk about our death, and [planning] does not have to default to finding a family member that takes over,’” she said. “Your succession plan can be promoting a current employee to take over professional management and you still keep the business in the family.”
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