Family businesses are crucial to the welfare of economies around the world, contributing over 70% to global GDP. While they are pillars of growth and job creation, family enterprises all face the same challenge -how to prepare the next generation of leader who will guarantee the continuity of the business. Attempts at succession planning often focus on developing specific managerial skills and competencies. However, one competency that is often neglected is developing the ability of future leaders to manage their social, personal and business networks.
Much has been written about the high mortality rate of family businesses in the second, third and fourth generations. This has been largely influenced by a study by John Ward of Northwestern University’s Kellogg School, published in 1987 in his book Keeping the Family Business Healthy. Ward’s study of Illinois manufacturing businesses found that 13% of successful family businesses last through three generations and less than two-thirds survive the second generation. A more recent study of Norwegian businesses (both family and publicly owned) found that sales dipped by 60%, on average, four years after a business owners’ death, and employment at the firms was down 17%. While these mortality ratios, are not applicable to all countries, they do highlight the danger of overdependence on a founding business owner and weak or non-existent succession planning. PwC’s ‘Family Business Survey: New vines from strong roots 2016/2017’ revealed that only 15 % of family businesses worldwide had a succession plan, with only 9% of Middle Eastern family businesses preparing the next generation of leaders. South Africans fared slightly better than the global average with 17% of family businesses having discussed and implemented a succession plan.
There are no magic formulas that guarantee successful succession planning. While managerial and business leadership skills are useful, the importance of the soft skill of managing a network of relationships in the business and community is critical.
Managing the various types of networks
There are various types of networks that a founder develops in the course of building a business. Business networks are the operational networks established mainly to achieve business goals, personal networks refer to a close and very selective network which include the large family circles and friends, social network is mostly related to community activities but can also include the category named strategic network where for example a CEO will include other CEO’s from different business sectors not related directly to his or her business but their inputs would be indirectly valuabl e , and finally an interest related network includes a circle that have common interests or subjects (scientific, artistic, literature, political).
In certain emerging economies, these types of networks compensate for the weakness of government institutional support for the business community.
Theses networking communities become the most important spaces where business alliances are built and new business trends are discussed.
Leading through Networking
It is true that most of successful leaders in family businesses are usually, in addition to their leadership skills, great networkers and they show great agility in managing relationships. Managing social relationships and business networks are key success factors for any business leader. Often the image of the business depends on how well the leaders of the family business are connected to society and how efficient they are in managing the overall stakeholder’s relationship. The perception of the family’s reputation, for example in the Arab world and in certain countries in Asia, Africa and Latin America, will depend on how intensely family business leaders develop and maintain these social and business networks through frequent social gatherings, events or philanthropic activities. Regardless of the country and community culture or level of prosperity; the network is still for family businesses an important source of resources, information, learning, and knowledge that is used to minimize risks, and exploit new business opportunities.
In the Arabian Gulf region family businesses dedicate one evening per week during which they open an annex of their house to receive guests including employees, friends or members of other family businesses. These ‘Majlis’ or ‘Diwania’ are important platforms for the development and reinforcement of relationships and for informal discussions about business deals which are sometimes more successful than the ones held in formal settings.
There is no business manual on how Arab founding members of family businesses or indeed founding members from any countries handover these important social skills to their successors, but from what I have seen during my involvement with several family businesses in the Middle East, Africa West Europe and also from my personal experience there are a few pointers that the founding member can consider sharing with their successors.
How to initiate successors to well establish network: 5 recommendations
1. Start early but carefully:
It is never too early to start introducing the young generation to the current leader’s network and relationships. This could begin with a soft approach whereby only a gradual introduction takes place initially avoiding confronting them with conflictual situations. Some of business leaders force the younger generation in what they call an “accelerated learning” cycle. It means moving around with the older generation without necessarily being active in the conversation. Such experience allows the younger generation to be exposed to dialogue around complicated subjects and issues that need specific expertise. While this is done with good intention, the older generation should pay special attention as such experience could be overwhelming and cause a lack of self-confidence. This lack of confidence could be translated, later, into aggressive behaviours towards certain persons, situations or communities. It is critical to have debriefing sessions with the younger generation to analyse the dialogue and listen to their impressions and opinion to provide guidance.
2. Define the rules of communication during the learning process:
While starting the learning process; the elder generation should provide guidance on how the next generation members should deal with and behave during open networks or closed assemblies. In some cases, the young generation could be flattered by their participation in the discussions between top leaders or policy makers and express themselves prematurely on delicate topics.
3. Tell the true story:
The young generation should know the history of the most critical relationships the family business has built over the years with persons and organisations. They should be aware about the nature of the ties (strong or weak) through the years and degree of trust. The current family business leaders should tell the story including all its successes and failures. It is important to explain how family culture provides guidance when dealing with success and failures.
4. Help the young generation to prioritise the relationship:
This could be possible in some cultures but more complex in others. For example in the emerging economies (especially in Africa, Middle East and Latin America) the business network and social relationships often overlap. The young generation needs to learn from the elders where and when to focus on business priorities and when to emphasise social aspects. They need to be taught how to be strategic when they network as they could be very quickly overwhelmed by the events. They need to learn to define the objective and know why they are networking and what they would like to achieve from the network and to adapt the dialog.
5. Allow space for next generation’s network:
It is important that the current family business leaders create the specific space to experiment their networking skills. For example this space could involve similar generations from other family businesses. This could happen during conferences or social visits and allows the young generation to have quality time and learn more about each other’s skills, ambitions and future plans.
The creation of Venture Capital companies under the umbrella of the family businesses is a new trend observed in a large number of family businesses in emerging economies. The main purpose is to allow the younger generation to use their skills to invest in new business opportunities outside the current family business traditional activities. This is built in some cases on the strong interpersonal network and but also allows to bring young generations from several family businesses together to explore co-investing in new start-ups with a limited amount of capital. This could represent an accelerated learning experience for the younger generations. They will report and brief the family and the older generation about the success and failures they are facing in such experience.
How to manage your network:
Succession planning is a multi-dimensional process; while it is very important that the managerial and leadership skills of the future leaders should be developed, social skills and being able to manage relationships is equally crucial to the successful take over by the next generation. This is not always considered or included in the formal preparation of the young generation. The most successful leaders are those who are able to inspire not only their employees but also other people around them in the community. To succeed in such a role requires preparation.
Dr Hischam El-Agamy is as an entrepreneur, he is the Founder of Tharawat Family Business for the MENA region and publisher of Tharawat Global Magazine for family businesses.