While many organisations focus on financial wealth, for family businesses there is something that is of equal importance – emotional wealth. Family Business – the balance for success is the ninth Family Business Survey from KPMG Enterprise and Family Business Australia (FBA). This fascinating insight into the family business landscape in Australia focuses on ‘socioemotional wealth’ also known as the ‘emotional value’ of a business rather than the ‘financial value’.
It’s something we believe is incredibly important here at Tiny Hunter. Why? Because the motivation for family businesses are so emotionally invested; instead of building an asset for often unknown shareholders, it’s about crafting a business that will last for generations, whilst still making money.
In our eyes, if the emotional wealth of a business is healthy, profits will follow. We also believe this permeates out to the wider team across the business, regardless of whether they are strictly ‘family’ or not.
In collaboration with the University of Adelaide’s Family Business Education and Research Group (FBERG) the report presents viewpoints from two generations – the current business leader and the next generation of the family. Below are some of our key takeaways.
One of the major differences between generations is the need to have concrete future plans and visions for the company. While the current generation is confident in its capabilities and has an innate sense of what’s next, the next generation require something more formalised.
The good news is that for those who take the time to learn how to communicate effectively, this can be successfully navigated. Particularly via Family Councils, which KPMG recommends as the optimum way to deal with family issues.
But intergenerational communication isn’t always easy. In fact, the report discovered that for the new generation communication itself is the primary cause for conflict.
Don’t be afraid of conflict as it can lead to greater, deeper discussions and better results for the business. But build a framework around opportunities to resolve conflict. Hold Family Councils and remember that different styles of communication need to be embraced, and compromises need to be made.
Succession is often one of the most difficult areas to navigate for a family business. Not just the transition of ‘who’s in charge’ but the eventual transition of ownership. The succession landscape is blighted by challenges – who will do what role? Do they even want to? Are they skilled enough? How will non-family employees take the transition? In the face of these questions it’s becoming ever more likely that a business without high emotional wealth will close down or be sold when the time comes.
Despite this, just 14 percent of businesses with leadership on the cards in the next five years have a unifying strategy for how the family will participate or be recognised. And just 27 percent have a retirement plan for the CEO/MD.
Be transparent about succession plans long before the time comes. Keeping the family in the dark is only detrimental to the business and the brand. If there is no plan, it’s time to have those hard discussions and make one.
Having a succession plan in place is one thing, preparing for it is another. It seems there is a definite disconnect between the incumbent believing someone is ready for the next step, and the successor actually feeling ready for it.
As the report delves into, it’s likely because the current generation is so embedded in the running of the business that they’re not focussed on sharing knowledge and including the new generation in decision making. Even if you’re not a family business owner, it’s easy to see how this can happen when immersed in the busy day-to-day.
Give the next generation a chance to develop a deep understanding of the business and develop their own perspective before taking on responsibility. We love this from the report: “A good motto is ‘learn, participate, and then involve them in decision making. It should not be ‘my way’ or ‘your way’, but ‘my way and your way’.