NextGen Survey 2024—Canadian insights

At a glance

Canadian family enterprises are facing yet another wave of change, with adoption of generative artificial intelligence emerging as a critical imperative to secure the long-term future of the business.

The next generation can play an important role in harnessing the potential of generative AI, but many NextGen Survey respondents are questioning current leaders’ openness towards adopting transformative technologies.

Taking a step back to better align and improve communication between the family members is key to building trust between the current and next generations and a common vision for creating sustained outcomes through generative AI.

At a time when leaders of Canadian family enterprises are facing major challenges to the future of their organizations, they need to stay ahead of trends that are fundamentally shifting the business landscape. These include generative artificial intelligence, a technology that’s already transforming business models and disrupting work processes and industries.

But while some family enterprise leaders tell us they’re adopting generative AI, many are facing barriers to not just incorporating the technology but also using it to its full potential. Among the challenges are a lack of skills as well as questions about how they can harness it to create tangible business value. This is where the next generation of family members who are aiming to become future owners, board members or leaders of the business come in.

With their unique perspective on the future of the business, the next generation—whether they’re already a leader in the family enterprise and looking to do more or at an earlier stage of involvement—can play a key role in finding ways to use generative AI to turbocharge innovation. Fulfilling that role requires actions from the current and next generations. In our Canadian insights from the 2024 NextGen Survey, we explore what both generations can do to position their family business to thrive in an AI-driven world.

Accelerating reinvention in Canadian family enterprises

The good news is many current leaders recognize the potential of generative AI.

Our recent CEO Survey found that 58% of top executives at Canadian private companies—of which family businesses are an important subcategory—believe generative AI will significantly change the way their company creates, delivers and captures value.

And many are taking action: 32% of CEOs say they’ve adopted generative AI.

But even with these promising signs, many participants in our NextGen Survey, which included interviews with 917 next-generation leaders in Canada and around the world, are skeptical about whether their family’s business is ready for the generative AI opportunity. Almost half (49%) said the business has either not yet started to explore generative AI or prohibited its use.

It’s true that some family enterprises can be cautious towards change. While there’s evidence that the current generation has an overall sense that generative AI represents an opportunity for their businesses, some of the Canadian family business leaders we speak to are unsure of the specific outcomes that would justify an investment in the technology. There’s also the cultural element of being a family business that’s close to its employees and the communities it operates in, with some leaders questioning how a technology that—rightly or wrongly—can be associated with job loss could impact those relationships.

Engaging the next generation in the AI journey

Access to skills and information about generative AI is another key challenge. Half of Canadian private company respondents to our CEO Survey said a lack of skills was inhibiting their organization from changing the way it creates, delivers and captures value. And because of the absence in some family businesses of a formalized system for bringing in outside perspectives, they may not be getting a broad range of insights into the opportunities generative AI presents as well as competitor actions they need to be aware of.

These are key areas where the next generation can help, but so far, only a small number of respondents to our NextGen Survey say they’re participating in discussions about AI in the business. Just 12% say they’re actively engaged in the topic already. Many view it as a significant opportunity to support their aspirations to eventually lead the business: 40% believe being an advocate for generative AI will help them progress towards a leadership role in the family enterprise.

While many next-generation leaders see generative AI as helping their own careers, engaging them in the topic should first and foremost be about securing the future of the enterprise and the family’s legacy. As business leaders have been making increasingly clear, the pace and the scale of the forces of change underway are raising the stakes for family enterprises:

30% of Canadian private company leaders who participated in our CEO Survey told us their organization may not be viable in 10 years if it stays on its current path. This only reinforces the importance of harnessing the next generation’s potential to support the family enterprise’s growth through tools like generative AI.

The link between governance and growth

Our NextGen Survey data further highlights the benefits of engaging these future leaders: analysis of the findings showed that those currently engaged in AI have a more forward-looking outlook towards the business as a whole.

But as we’ve seen in past studies like our Family Business Survey, this year’s data found governance issues and a lack of clarity around roles and responsibilities remain a challenge for Canadian family enterprises. Only 51% of NextGen Survey respondents felt their family business has a clear governance structure.

This last finding about governance is key as having a well defined set of processes and rules is the best way of creating alignment between the current and next generations around the future of the business and how to achieve the family’s goals. Governance can fall by the wayside in some family enterprises given the tendency to rely on their inherent strengths—such as deep relationships with their communities and employees, the founder’s extensive knowledge of the business and their long time horizons for making decisions—rather than establishing formal structures, roles and processes that set clear lines of separation between the family, ownership and operations.

The result is often a focus on day-to-day operations at the expense of opportunities to bring in a range of voices, through bodies like a board of advisors, to think carefully about the long-term strategy and direction of the business.

Formalizing the path forward for the next generation

At its core, governance is about having proper communication and transparency with stakeholders, including family members; setting out defined roles and responsibilities; and making sure everyone follows established procedures and understands why certain practices and policies are in place. Putting formalized structures in place is also an effective way to facilitate the next generation’s involvement in the business. Some enterprising Canadian families, for example, have rules requiring the next generation to work outside the business for a significant period before they can return to the family enterprise.

Rules like this not only show the next generation what the path to greater involvement in the business looks like but also help build their own skills and acumen for when they return.

Another key opportunity is to task the next generation with helping set up more formal governance for a family enterprise that lacks it. One scenario we see among some enterprising families is establishing a shadow body—sometimes led by or involving a member of the next generation—that helps set up the board of advisors the business needs to better plan for the future.

This process can engage the chosen member of the next generation in better understanding the business and how and why it has evolved to where it is today. It can also require them to analyze where the business is going in the future; assess what the board of advisors should look like and the range of skills it needs; and start finding the right people—both internally and externally—to sit on it. Through this process, the next generation shows their commitment to the business and earns their right to be involved in it and eventually play a leadership role on issues like generative AI-driven innovation.

Making mutual commitments

Ultimately, enabling better governance is about building trust between the generations. This is critical because, when it comes to making significant changes like adopting generative AI, the current generation may have concerns that need to be addressed. They may recognize the imperative to stay ahead of technology trends but want to be sure a tool like generative AI is being adopted carefully and is leading to tangible business outcomes rather than pursuing innovation for its own sake.

Importantly, the current generation wants to see that investing in a new technology will support the long-term sustainability of the business. This is why efforts by the next generation to earn their place at the table, whether through a shadow body described above, working elsewhere for a period of time or volunteering for or being an intern on AI pilot projects, matter so much. These actions show the next generation’s engagement in understanding business more broadly and the family enterprise itself, which in turn builds trust that they have the right motives and care about growing the organization.

At the same time, the current generation needs to commit to teaching future leaders about the business, why it has operated in the way it has until now and how it will evolve in the future. The next generation also wants to see signs of an openness to change given their legitimate concerns about whether the business can adapt to today’s intense pace of disruption. These mutual commitments by the current and next generations can help strike the right balance between respect for what the company founders have built and opening the path to actions to stay ahead of change.

Learn more about family enterprise governance and succession:

Next steps to enable success

Besides establishing better governance, there are a number of steps both the current and next generations can take to turbocharge innovation in the family enterprise. Below, we outline below some key actions for both generations to enable success in an AI world.

Key actions for the current generation

Besides taking the time to learn more about what generative AI is and what it means for their business, current leaders of many family enterprises need to set the foundation for adoption by enhancing their data architecture to support new tools and capabilities. It’s also important to elevate generative AI discussions beyond your technology leader or function. This is key to taking a comprehensive approach that engages multiple functions and the board in developing a focused strategy for delivering long-term value creation and competitive advantage through generative AI.

Many of today’s cloud-based applications incorporate generative AI to some degree. For those that have already moved to the cloud, AI capabilities may be more accessible than you think. For those not yet on the cloud, making the shift is more important than ever.

As much as generative AI is an opportunity, it also presents risks that can erode the hard-earned trust a family business has built with its customers and other stakeholders. This once again raises the importance of strong governance, communication and transparency as part of enabling responsible adoption of generative AI. Our NextGen Survey revealed gaps in many family enterprises, with just 6% of respondents saying the business has defined governance around using AI responsibly.

Key actions for the next generation

Next-generation leaders advocating for faster adoption of generative AI can have more influence if they focus on the most immediate and impactful solutions. This approach can increase trust with the current leadership, and the next generation can then build on their initial success to find opportunities for deeper, long-term transformation and change that go beyond specific generative AI use cases and pilot projects.

Relationships, networking, career development and education are critical to preparing for a bigger role in the family business. Consider offerings like our NextGen Connect program, through which members of the next generation at all stages of the succession journey can learn from their peers, broaden their networks, explore new ideas and develop capabilities to take back to the family business.

Balance your enthusiasm for new technology with respect for the perspectives of current leaders by embracing opportunities to participate in board meetings, even as a guest. This is a key way to gain insights into the experiences of others while contributing your fresh ideas and perspectives.

Securing your family’s legacy

Wherever you, your family and the business are at in navigating this period of relentless change, we’re committed to being by your side for the moments that matter. Contact us today to discuss opportunities to secure the legacy of your family enterprise as you plot your future in this new era of digital disruption.