Andrew McCulloch is an adviser, investor and Non-Executive Director, based in London. 

Entrepreneurial Spirit was created as a creative outlet to share stories and lessons learnt from over a decade in investments and working with entrepreneurs. 

Family business succession: Does the next generation measure up?

Family business succession: Does the next generation measure up?

The sudden death of billionaire landowner and philanthropist the Duke of Westminster highlights one of the old guard of family businesses. His son, Hugh Grosvenor, now takes up the reigns of the £9bn Grosvenor Estate, at the tender age of 25.

It is unrealistic to think that he will have to do this alone - the family will have many advisers covering every aspect of the estate including; land, businesses, investments and all the people it employs. It is however as high profile example of a family business as I can think of.  

It is important to note that the former Duke's death was sudden and being relatively young at only 64, this must have been a shock to the family and all those who knew him. Risks like this are always in the background, so it pays to be prepared for the unexpected.

This highlights some valuable lessons that can be applied to any business, as succession between generations in family-owned business is never easy, with the next generation having grown up in a radically different culture to that of their parents.

In the last 30 years, the concept of the family business being handed down automatically to the next generation has become much less common. Businesses have become more a commodity, to be bought and sold, rather than kept within the same family for multiple generations. If you are part of a family business, it is likely that it will have a primary focus on a particular sector, or industry. Family businesses are therefore often also at greater risk due to their lack of diversification, compared to larger competitors.

Younger people will therefore find it harder to integrate into a long established and possibly very traditional business that specialises in a certain product or sector that is not second nature to them, although it may have many elements that have moved with the times.

It is therefore vital that the next generation are exposed to the business and the wider industry as early and as frequently as possible. This gives the best chance of them being able to come into the business with the requisite skills and passion for the industry, not simply out of duty to the family. Ultimately, the sheer responsibility of such a large estate comes with its own challenges.

What you enjoy is yours; what you save for your heirs, is already not yours, but theirs.
— Anonymous

The new heir of the Grosvenor Estate, has so far kept out of the glare of publicity that once contributed to his father becoming affected by depression. There is no doubt that he is well educated and has sought outside experience in the business world, all of which should stand him in good stead. He will also be supported by a team of people who can advise and support him.

So what should the current leaders of family businesses consider when it comes to succession for their own businesses?

It is important to ask the following questions:

  • Do they want to be part of the family business? Many offspring do not necessarily want to follow the same path, so be honest with yourself and allow them the choice
  • To hire a family member or not? Are they the right person for the job and do they have the right skills for the role?
  • Are they able to stand on their own two feet in the world without resorting to the safety of the family business? Build their confidence from an early age
  • Do they understand the wider business world and how to run a company? Prepare them for the world of business beforehand. Experience in other companies before joining the family business will be invaluable when they do join
  • Are they respected / liked by employees? Ensure they have credibility with non-family members
  • Does the business operate as a business should, or are the lines blurred by family members interests? Ensure clear lines are drawn between family and business  
  • Will they add value to the business? - Traditional business models can be come extinct if a business does not grow and move with the times, does the next generation have the ability to manage change
  • Is family remuneration reasonable? Ensure that their remuneration is consistent with their contribution
  • Is performance reviewed properly? They should be treated and must confirm to business practices like any other employee or non-family member
  • Do they have mentors outside the family? Having as someone providing guidance and training outside the family will help. Trying to teach a family member to drive can be stressful enough, let alone when it comes to constructive criticism and development

If the answer to any of the above is negative, it may not be the right choice to hire a family member. It might be worth considering whether the business can be sustained in future by the family, or whether it should be sold.

Whatever issues your business faces, it is vital to plan ahead and be able to manage the unexpected - such as losing a key person or family member. 

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