Preparing the Next Generation of the Family Business

The answers to these questions will vary from family to family, but for the sake of clarity and motivation, we have divided “the good development” into two dimensions so you, in your family, have a good starting point.

The good development model has two dimensions: the financial dimension and the competence dimension. In other words, how and when will the next generation receive the funds (finances) and what opportunities and meaning do the ownership give them (competencies).

The Financial Dimension

In the development of the financial dimension, it needs to be clarified when the people of the next generation actually become wealthy. In other words, at what age does the wealth become theirs? Each situation is unique and as such there is no perfect age. For a significant fortune, it may be advantageous to do it in stages, for example around the age of 21, and again at 25 or 30.

Some families choose to make the payments requirement-dependent. This could be a requirement for the next generation to actively participate in the ownership, a requirement to undertake training, or a requirement that the funds are earmarked for housing or education, for example. Again, it depends entirely on the family’s history, values, and disposition whether the availability of the funds should be conditional on the fulfilment of the requirements. Generally speaking, however, it is an advantage for all generations, both those handing over the wealth and those receiving it, that the process is set and established in the family.

The Competence Dimension

Here, the focus is on helping the next generation understand the ownership and step into the role of owner by making it clear to them from when and for how long they need to be trained and when they need to deliver. This may involve, for example, clarifying when to participate in board meetings, possibly first as an observer and later as a full member. From when and what competencies are required to be a member of, for example, an investment committee? From when and what competencies are required to become specialised in the ownership role and thus actively contribute to the ownership? To help the next generation acquire the right competencies, it is helpful to train them in the five points below, which will often define family ownership:

The Ownership Strategy is the family’s strategic foundation, clarifying the mission, vision, values, meaning, and investment logic of the family’s ownership. An ownership strategy sets a clear path and is a guide for the next generation.

Community is a helping hand to the new, young owner, who hopefully can find support from siblings, parents, grandparents, and cousins, so he/she doesn’t have to shoulder all the responsibility alone.

Competencies should be jointly agreed upon. Among other things, an individual competence development plan can help the next generation make choices regarding their education that will help them later in their ownership.

The structure is an important parameter of success for the next generation. The structure should be understood as the family’s communication, forums (the board, family office, family meetings, etc.), and the annual wheel. The structure is a framework for ownership that, among other things, enables the next generation to learn on the job, e.g. as observers at board meetings, etc.

The counsellors of the family should be presented and make clear what each of them can contribute and what problems they can solve. It is very important that the new owner understands that they have access to specialists, who can help them realise plans and manage challenges.

The two dimensions of the development model need to be tailored by/to the individual family. A family with a business will typically have a different model than a family with a fortune because the opportunities for training aren’t the same. The motivation and commitment to ownership and community also differ from family to family, also depending on the current leadership of the next generation. And as such, the preparation process of the next generation will always need to be customised.