In the fall of 2019, the Successful Transgenerational Entrepreneurship Practices (STEP) Project Global Consortium released the 2019 Global Family Business Survey to which KPMG Private Enterprise contributed its insights. The report probed how family businesses throughout the world are dealing with succession and governance challenges in light of changing social demographics. We didn’t realize the degree to which those challenges would be amplified in the coming months as the head-on impact of COVID-19 led many family business owners to seek new ways to sustain the legacy of their companies. For many, succession and governance issues and the need to draw on innovative, multi-generational ideas for the future came to the forefront.
Regardless of the family business situation at any particular point in time, one principle holds true: there will (and should) always be questions about what comes next, including who will take over when it’s time to retire. Many family business CEOs want the next generation to continue building on the foundations they laid. But how might those foundations need to change for the new reality ahead? And how can you be sure the next generation is ready to take the business in that direction?
The results of the 2019 Global Family Business Survey offer valuable ideas and insights about planning for this transition in your business. Additional in-depth interviews with family business leaders across the globe provided us with firsthand and profound perspectives on many succession issues. I encourage you to learn about their personal views and succession experiences when these family stories are published in a series of articles on the KPMG website beginning in October.
Why succession planning is needed now
One finding was that 15 percent of all North American family businesses are led by CEOs from the “Silent Generation” born between 1925 and 1945, and more than double the global average. Given that the youngest CEOs in this cohort are in their mid-70s, succession planning should be an urgent priority for these family businesses, particularly given the uncharted and challenging territory that lies ahead in the New Reality.
The survey also revealed that 70 percent of current family business leaders admit that they do not have a succession plan, even though 45 percent say there is a high likelihood that the family business will stay in the hands of the family in the future. This sentiment is particularly strong among Silent Generation and Baby Boomer CEOs. The good news is that the results of the survey show that Millennials are ready to step up and take over family businesses. Many are already doing so with great success around the world. We see rapid changes in operating models and business innovations emerging from family businesses that tackled COVID-19 head-on.
The good news? Millennials are ready to deliver
Far from being lazy and entitled, as popular stereotypes sometimes assume, a 2016 workplace study conducted by the World Economic Forum suggests that Millennials are the most likely group to be workaholics. Compared to older generations, they’re also less likely to use all of their vacation time.
It shouldn’t be surprising then, that family businesses led by Generation X or Millennial CEOs show higher levels of performance in the STEP Project Global Consortium survey than family businesses led by the Silent Generation and Baby Boomers, with CEOs from those older cohorts experiencing a fall-off in performance over time.
Different styles, different outcomes
It should also not be a surprise that the STEP Project Global Consortium survey found notable differences in generational outlook between Silent Generation/Baby Boomer CEOs and their Generation X/Millennial CEO successors.
While 60 percent of CEOs in Europe and Central Asia and 40 percent in North America plan to retire after age 70, most Millennial family business leaders worldwide plan to retire before their 50th birthday. The 2018 Millennial Impact Report1 also found that this group tends to favor social issues over institutions, is frequently influenced by the actions of their peers, and cares about how their actions can make positive changes in their world. All of these traits can affect the way Millennials run a family business.
Millennials can lead the new reality revolution
Silent Generation and Baby Boomer CEOs should feel reassured by the results of the survey when it comes to concerns regarding the next generation’s readiness and ability to lead the family enterprise.
Millennial family business leaders may have different priorities and leadership styles than earlier generations, but they are a highly educated cohort of potential CEOs who are eager to make their mark. Indeed, a 2018 study2 shows that 29 percent of Millennials are already in management or executive positions in family businesses, with 23 percent holding positions on the board. Millennials around the world are leading family firms to new heights, with family firms led by younger CEOs performing better than those that have not yet transitioned to new leadership.
Taking all of these considerations into account, family business CEOs should not delay planning. This is especially true for Silent Generation and Baby Boomer CEOs, who must consider the importance of work-life balance for younger generations and, in particular, the desire of Millennials to retire decades earlier than their predecessors. By putting a formal, timely and professional succession process in place that reflects changing demographics and evolving leadership styles, family business CEOs can help ensure the future of their family business.