Generation to generation: The challenge of transition

By SOCH Business Mentors LLP Posted May 22, 2017 in Family business

Generation to generation: The challenge of transition

How do the family leaders see legacy and passing the legacy in business? Planning for the future of the business is not a short-term activity, but a continuous endeavour that a family undertakes to ensure that the generation, to which they pass on their hard work and fortunes to, moves beyond the boundaries of inheritance and ambitiously works towards enhancing the family name, fame and bloodline.

Often the lack of adequate preparation both from the owners and the families leads to mismatched expectations at the time of the transition and thus begins the fall of an empire.

The myth of “I have time”

‘In some cases, after the patriarch is no more or is weakened, the families manage the succession issues well, in some cases – there are minor conflicts, yet in some, this leads to major conflicts.’ Now when you add the complexities of business, vast undivided assets and most importantly the position of power up for grabs, it becomes a different case altogether. Many leaders of family businesses assume that they will live much longer and do not work on a transition plan.

Death is an extreme situation, but simple aspects like falling health, other priorities, losing interest etc. are equally grave for the Business. So many businesses have seen their demise not because of faulty business models, but the inability of the family behind to stay together and stay focused.

Existing solutions and drawbacks

So is it enough to just figure out who should succeed you and what will be the ways you will divide up your family money, assets and business? Is it ok for a will to only talk about the transfer of physical assets and the monetary benefits? What about your intellectual capital? How is your wisdom being inherited or passed on? How is the family honing the acumen of the next generation to take charge? What are the biggest advantages of a family business and how could they be leveraged across the generations?

Let us go through an example of a smart father, and an even smarter businessman.

Mayer Amschel Rothschild (February 1744 – September 1812) was a German banker and the founder of the Rothschild banking dynasty, which is believed to have become the wealthiest family in human history. Referred to as the “founding father of international finance,” Rothschild was ranked seventh on the Forbes magazine list of “The Twenty Most Influential Businessmen of All Time” in 2005. Born in the ghetto of Frankfurt, Mayer developed a finance house and spread his empire by installing each of his five sons in the five main European financial center’s to conduct business.

The Rothschild coat of arms contains a clenched fist with five arrows symbolising the five dynasties established by the five sons of Mayer Rothschild. He spread them and asked them to make their own fortunes. This independence and yet close-knit support, as well as family loyalty, led to an extraordinary rise of the Rothschild wealth. Now was it just wealth that Mayer Rothschild was passing on?

Or was it a way of life, morals and values that are governing the family even today?

It was the intellectual capital and the learnings of being a Rothschild. It was the realisation that each generation has to do their bit and it was the hedging of bets because he knew some districts may be torn apart by the war and yet it would benefit the family as a whole.

All the children were loyal to only the Rothschild name and not the governments they served under. Today there are over 2000 members and over 350 Billion USD wealth between the family which they have managed to keep and increase.

Each generation is the first generation

The major realisation that most leaders of family business must understand is that if the family wants to avoid moving from rags to riches to rags, each generation must think, lead and act as if it is the first generation. The wealth creation is not the sole responsibility of the first generation.

Every generation needs wealth creating entrepreneurs, some intrapreneurs and some family stabilisers to make sure that the business and the family prosper. The succession planning does not start when the next generation is 21. A forward planning family would start way ahead. When we talk about planning, it is not about training the successor on skills alone, but also the values that you really wish to continue as a part of the business.

Succession planning is beyond deciding which property goes to which son or daughter. It is about how the unique identity of the family is passed on for future. If a family makes so much effort at creating a business brand, they should put equal, if not more, emphasis on building a family brand.

Have the right plan today…

The time to start thinking about the future is when you still have enough in you to do something about it. Often in the bustle of wealth building, by the time we are ready to take a breath and wonder what to do, the time to pass the baton has already passed.