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Developing the Next Generation Leadership for Family Business

By Navneet Bhatnagar

Smooth inter-generational leadership transition is critical for the long-term survival of business organisations. In the family business context, passing on the baton to effective next-generation leaders is crucial for the continuity of family legacy. For this transition to happen effectively, it is important that family businesses develop their next generation members in a systematic manner that prudently builds their capabilities and prepares them to face future challenges. There are some essential building blocks of next generation leadership development that family businesses may adopt.

Start Early

Providing early exposure to business helps the next generation members gain a closer understanding of business processes and the family’s purpose and involvement in business. This may be a school project that a young member undertakes in the business setup or something more challenging like, solving a resource allocation problem for the business. These initial experiences develop their thought process and they begin to identify the business aspects that may evoke interest in them (or put them off). This exposure helps them in aligning their aspirations with the family’s vision for future. It provides clarity and shapes their career choices. Thus, early exposure triggers a process of self-selection of future business leaders.

Equip with World-Class Education

Next generation members need to be equipped with world-class education to excel in whatever they may choose to do, i.e., family business or any other career. These qualifications may be in business or a technical/ vocational field (or both). High quality education adds to their knowledge and skills, thus building their capability. It helps them prepare to deal with future challenges, whether in the family’s business or in the career of their choice. When the next generation leader is armed with the requisite knowledge and skills, the business remains in capable hands and is likely to survive longer. Attending world-class educational institutions broadens their exposure and provides access to global network of high-quality peers. Strong educational background helps them earn respect and acceptance from others within and outside the family and business. It prepares the ground for taking on the leadership challenges in future.

Provide Outside Work Experience

Another crucial aspect of next generation leadership development is to provide youngsters the opportunity to gain work experience in reputed firms outside the family business. This helps them learn best practices in business management and further adds to their exposure. However, these companies must be carefully selected. The learning experience of next generation members is enhanced if these firms follow progressive organisational culture and professional practices. Work experience gained outside the family business builds their capabilities to work in teams and helps them master analytical problem solving. When next generation members are equipped with these capabilities, they can confidently take up leadership roles and effectively deal with complex challenges of the family business.

Induct Meritoriously

It is important that entry into the family businesses is not easily served on a platter but must be earned by excelling on predefined objective criteria. The entry criteria must be pre-communicated to all next generation members and others in the family. This provides clarity and help set realistic expectations with respect to the next generation’s involvement in business. A merit based, objective mechanism of inducting next generation members ensures entry of top-quality human resource from the family. It reduces family conflicts and creates a sense of responsibility and seriousness towards the business among the next generation members. An objective process of entry in business also helps the next generation members earn respect and acceptance from others.

Let them Climb up the Ladder

The next generation members must not be directly appointed to the top-level leadership positions just based on familial considerations. Instead, they must be asked to join at a level that is appropriate for their qualifications and experience. Thereafter, the next generation members must prove their mettle and climb up the corporate ladder based on merit. By doing so, the they become aware of several organisational problems and bottlenecks, get exposed to different functions and their interfaces, and build strong bonds with several stakeholders. Thus, this approach helps the next generation members become more effective team workers and leaders.

An able and effective leadership in the next generation not only contributes to business revenues and profits, but also earns for it higher market valuations and respect from others. However, the most important benefit of a well-developed next generation leadership is the assurance of family business sustenance and continuity of family legacy. This makes it imperative upon incumbent leaders to take significant focused efforts in developing their next generation.

The author is Analyst at the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, Hyderabad.

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