Family Business Continuity: How to Secure the Family Legacy

While family businesses will evolve and leadership will change, purpose can act as a strong bridge between one generation and the next.

If there’s one thing business leaders have learned over the last 12 months, it’s that they need to be prepared for the unexpected. The rapid emergence of COVID-19 and its subsequent impact on businesses across industries put a spotlight on the necessity of crisis management and business continuity planning. 

Business continuity is particularly important for the leaders of family enterprises, because when a family business is put at risk, so is the family legacy. While many family businesses are now taking the time to implement more rigorous crisis management plans, too many are ignoring one of the most fundamental business continuity risks that a family business can face: the inevitability of ownership and leadership succession.

Founders and leaders who have developed successful family businesses over time want to know that their business and their family will thrive after they’re gone—that the legacy they’ve created will neither be eroded nor lost. To manage the transition of leadership successfully, business families need to work together to define their family values, the overarching purpose of their business, and the legacy they want to create. They can then use this collaborative knowledge as a kind of “North Star” going forward. While family businesses will evolve and leadership will change, a shared set of values and a shared purpose and vision can build a strong bridge between one generation and the next.

The perils of not planning

Despite the importance of succession planning, only 34% of family businesses globally have a robust, documented, and communicated succession plan in place.  The reality is that few people want to think about becoming ill or dying unexpectedly. It’s an extremely difficult possibility to consider, much less discuss with family members. But not having these challenging conversations can be the death knell of a family business, because in times of stress, tensions can quickly rise. And if, in the absence of a clear plan, family members have different opinions as to the future of the business, they can quickly come to loggerheads. Major disagreements—particularly those that are emotionally charged—can tear not only the business apart, but the family as well. 

Proactively thinking about the future and developing a plan that considers different scenarios can help business families stay united when faced with unexpected events. If everyone in the family knows what will happen and what to expect in the wake of an unplanned—or planned, for that matter—change in leadership, the risks associated with this change can be minimized.

Beyond succession: Building a solid foundation for the future

While developing a succession plan should be a priority for any family business, it is only one piece of the puzzle when it comes to ensuring long-term sustainability. Another is making sure that the business is built on a lasting foundation, and this requires that family members agree on their aforementioned North Star.

Documenting family values is not a widespread activity for family businesses at present, but it should be. While 73% of business families globally say they have a clear set of family values, only 44% have documented their family values and their company’s mission statement.  The challenge is that not documenting this information can lead to misconceptions down the line. The lack of a written record can also cause friction within a family over time, given that different generations often have divergent perspectives, motivations, and priorities.

By working with family members to identify and document family values, the business purpose, and the desired family legacy, founders and business leaders can better ensure that their business reflects what matters most to those who will succeed them in leading the business forward—whoever they may be. At the same time, developing a common understanding can make subsequent discussions about succession planning and risk management less contentious by giving family members a firm foundation on which to base their decisions. 

So, how can the leaders of a family business more readily engage their family members in discussions about values, purpose, and legacy? Here are four tips:

1. Determine which family members will be included

When engaging with family members, transparency and consistency are key. This means drawing a line as to who will and who will not be included in discussions related to the family business. Different families will draw different lines in the sand; for example, some may choose to include spouses, while others may not. Regardless of where the line is drawn, transparency and consistency will help enhance trust and improve any discussions and outcomes.

2. Gather individual perspectives 

It can be incredibly valuable for family members to engage in one-on-one conversations with a third-party advisor before coming together as a group, because these conversations allow them to share their opinions without fear of reprisal from other family members. Additionally, the third-party advisor can subsequently share themes from these separate discussions in a group setting, leaving them unattributed to preserve anonymity.

Individual discussions can also be a good way to gather unfiltered opinions from younger family members. Millennials and younger generations may have more career options than their predecessors and may not feel obliged to take over the family business. By understanding what matters to these generations, founders and business leaders can better adapt and transform the family business to make it more appealing to next-generation family members. For example, younger generations are driving many family businesses to embrace sustainability and environmental, social, and governance principles. According to PwC’s Global Family Business Survey 2021, 60% of fourth-generation family businesses embed sustainability into their decision-making, while 40% have a well-developed sustainability strategy.

While some business families are well equipped to facilitate these types of discussions, others might find it beneficial to engage a third-party facilitator to moderate discussions and help identify overlaps and common themes in the perspectives of different family members.

3. Facilitate family discussions by starting with strengths

Family business founders and leaders should use the information gathered during individual discussions as a basis for bringing family members together to develop a common understanding of the basic building blocks of values, purpose, and legacy. By identifying areas of alignment, founders and leaders can create a sense of unity and collaboration among family members and identify guiding principles that can then be used to help address areas where views are more divergent.

Business families may also want to use group discussions to foster understanding on other key issues unique to their situation. For example, families with an operating business may want to discuss whether the next generation is interested in retaining the business and whether they understand what business ownership entails, while families with wealth assets may want to discuss expectations around dividend distribution policies and philanthropic priorities.

4. Use defined values, purpose, and legacy to guide other decisions (like succession)

Once family members have come to a common understanding on the building blocks/fundamentals, business founders and leaders can use this foundation—this North Star—as a basis for conducting additional planning activities that might otherwise be very difficult or emotionally fraught, like succession planning. Planning for transition becomes far more manageable when everyone in the family knows how and why decisions need to be made.

Working together to help business families succeed

While planning for succession can be difficult, there are ways to make it easier, including hiring a business advisor. One of the key roles of a business advisor is to help business families navigate difficult issues.

One successful way to help business families tackle transition planning is to start by determining what matters to the family most. Rather than focusing on “What if?” scenarios from the get-go, bringing family members together to build agreement on their values, their business purpose, and their legacy can help family members of all generations unite around a common vision—something really positive! Family businesses and their advisors can then use this information to guide decision-making on other sensitive topics.