Bridging the generational divide

For family-owned business leaders, the good news is that their millennial children are ready to take over the family business. The not-so-good news is that over 70 per cent of family businesses do not have a formal succession plan in place. This deficiency is further complicated by the fact that the younger generation tends to want to retire earlier – often by age 50 – a majority of current leaders plan to stay on after age 60, with some into their 70s.

“This trend represents a major disconnect and can create tensions between generations,” says Mario Paron, Canadian managing partner, KPMG Enterprise. “It shows that important conversations about succession planning aren’t happening, but need to.”

The findings are based on the STEP 2019 Global Family Business Survey, which highlights how changing demographics and generational differences are impacting family business succession planning and governance strategies. KPMG is working collaboratively with the STEP Project, a global applied research initiative, and supported these insights, derived from over 1,800 business families in 33 countries. The research shows that establishing family governance tools, including family constitutions and charters, leads to better overall business performance. While some first-generation founders may think governance tools come with a loss of control, these tools are actually key to improving family engagement and can help manage differing views and expectations between generations.

There are many reasons why succession plans, crucial to the intergenerational transfer of wealth and enterprise, are not in place, adds Mr. Paron. “The current CEO could be too busy running the business, or may simply want to avoid difficult decisions that tend to be both complex and fraught with family dynamics.”

To help get over this hurdle, KPMG has developed a new Family Business Dynamics Assessment tool. It’s a confidential, online, self-diagnostic tool that allows family members, and some non-family senior executives, to assess capabilities and priorities. Drawing on the firm’s global experience with business families on key success factors, the tool benchmarks input against other similar families by generation, industry and globally. It can be used on its own or in conjunction with other KPMG Family Office services that provide families and their businesses with a holistic approach tailored to their unique needs.

The tool can identify gaps in understanding and kick-start the kind of conversation families need to help them align on where they want to go, says Mr. Paron. “Sometimes you find out that the younger generation is less interested in taking over the business and more interested in monetizing their share of it. That’s the kind of insight you need to be able to plan for the future.”

The STEP survey also found that millennial family business leaders tend to be highly educated, tech-savvy and care more about work-life balance. Findings also suggest firms led by millennials have a higher performance than those led by older demographics. As well, millennial and Gen-X family members tend to have a greater interest in social impact alongside financial gain, which reflects the rising importance of KPMG’s impact investing services.

The goal is to help families develop business succession plans and ensure the longevity of the family and its wealth for generations, says Mr. Paron. “Ultimately, what we’re saying is, let’s get that conversation started.”

Advertising feature produced by Randall Anthony Communications. The Globe’s editorial department was not involved.