Induction of next generation in family business

Growth and Perpetuation of family business depends on successful transition of the business to the next generation. Unsuccessful transitions often lead to the failure of both the business and the family. This article intends to focus on one of the reasons for this failure which is the inability of family businesses to induct the next generation in the business or because of the errors made in this process.
Family Businesses Owners want their children to join the family business and usually do not even discover whether they are interested in joining the family business or not. Also, even if they are willing, their readiness to put in the effort and time to learn how to manage and lead the business is not checked. Unwilling or underperforming youngsters do not lead the business well and it impacts the business growth. Ashish Bharat Ram, Managing Director, SRF rightly said- “If a family member doesn’t have the passion or doesn’t want to take on the responsibilities to run the day to day business, he or she should ensure that they assume the role of a responsible family owner and should not interfere in business management.”

Challenges
In many cases, when the next generation member joins the business, family business leaders don’t know how they should start. The next generation members just start going to the office with the family members and are told to find work initially to engage them. This creates ambiguity and delays the process of them learning actual work and the requisite leadership, managerial and personal skills. Also, they are often seen as owners since the first day. This at times puts a lot of pressure on them that they need to start leading the business as soon as possible.

One common fear among business owners of all sizes and industries is that their children will grow up to be entitled. Entitlement doesn’t come just by virtue of being born in a wealthy family. Well-meaning parents of business families without realising, provide misguided protection to their children which leads to them feeling entitled.

Another challenge faced in the induction of the next generation in the family business is that they have new ideas and a lot of enthusiasm to execute their ideas while the older generation doesn’t agree with them in light of their years of experience in the industry. Such repeated instances lead to piling up of emotional baggage within family members of both generations which has a bearing on the business performance.

In light of the challenges faced in the absence of a clear induction plan, family business promoters need to plan how to induct their next generation members right at the time of their joining the business. In doing so, clarity in the family’s mind that discovering the direction in which development has to happen is a pre- requisite. Often this is skipped, and the emphasis is on how fast the next generation member becomes the CEO.

Also, setting unrealistic expectations and rushing the induction process will harm in the long run and also jeopardise family relationships. A crucial condition which must be adhered to in this process is that the next generation member who wants to join the family business must either work outside for the first three years or report to senior management who are not from the family.

How to deal with the challenges
Key stakeholders such as parents, senior employees, a mentor etc must be involved in the process from the beginning and they must meet quarterly to stay aligned on the process and suggest and decide changes in the course of action wherever needed. In some families one of the family members from the older generation who is active in the business takes up the role of the mentor. Inducting the next generation in family business is a sensitive activity, hence, many family businesses engage with an expert who plays the role of the mentor in this process.

A successful induction process can be planned and executed in three stages led by the mentor. We call these stages - Enjoy, Learn and Excel. Much against the common approach of starting with setting big goals and a lot of motivational talk, the induction process should begin on a lighter note and the mentor must discover why the mentee has joined the business and connect with the interests of the mentee. In light of these interests, the mentor should facilitate the mentee in deciding some small, atomic habits such as reading, meditation, exercising, learning a certain language relevant for business etc which will collectively bring results over a period of time. The objective of this first stage, the Enjoy stage, is twofold. First that the mentee feels understood and connected with the mentor and second that they perceive this process as an enjoyable journey full of learning and opportunity.

The second stage is the ‘Learn’ stage. It could begin with the mentee deciding in which department/ function they want to start learning - production, sales & marketing, accounts, and finance etc. The mentor can fix a duration with the heads of the department for the mentee’s learning. The head of the department and mentor must decide the person to whom the mentee would be reporting. Formal feedback must be taken from each manager to whom the mentee reported. The mentee should be in weekly touch with the mentor and share his learnings.

The third stage, the ‘Excel’ stage, is giving the opportunity to the mentee to start working under one of the HODs in the company with clear deliverables. Here, the mentor should see how the learnings so far are being applied and guide the mentee accordingly. This process can set a strong foundation for the next generation member to either lead or play a key role in the business.

To summarise, the following are the 5 Dos:

• First decide the direction, then focus on speed
• Don’t rush the youngsters
• Follow the three-year rule of reporting to someone outside the family
• Involve key stakeholders through the journey
• Plan ahead using the three-stage process - Enjoy, Learn, Excel

Chandrasekhar is Partner & Senani is Senior Consultant, BAF Consultants