Family Business: Grooming the Next Generation

  • First Bank
  • 05/28/2019

The final measure of an organizational leader’s success is not only how well the organization functions after his or her tenure but also throughout their succession process. In other words, did the chief executive officer (CEO) prepare a successor that could continue to grow and advance the organization? In a family business, this is critical for the engine or business that drives the family’s wealth and well-being.

Ideally, the next generation includes multiple talented members, actively involved in the business, and committed to its long-term success. The time will come when the critical question is asked, “Which member should be the next CEO?” Often, the answer is apparent, and sometimes multiple family members vie for the position. It’s important to note, however, parents may not always be an objective evaluator of the talents of their children. In fact, a professional, individual assessment should be considered to provide an independent evaluation of strengths and weaknesses.

A professional, individual assessment can provide an independent read with supporting normed data, or the questionnaire data compiled from a robust assessment process that’s evaluated against a specific group (e.g., the general population, college graduates, American managers, etc.), on current strengths and weaknesses as well as longer-term potential of each member of the next generation to be CEO. Such normed data helps to quantify talent, identify strengths, and developmental areas relative to others, and provide insight into long-term potential. This helps the current generation understand the risks or benefits of placing one of the family members as the CEO successor.

Top-level successors typically do not develop in an ideal fashion if left to themselves; we all have blind spots where we don’t see objectively, while others do. In this scenario, a 360-degree feedback process helps behaviorally measure current strengths and developmental areas. A 360-degree feedback process helps individuals in a given organizational role understand their effectiveness by obtaining observations about performance from those who work all around them. Typically, four perspectives of the individual are interviewed: self, manager, peers, and direct reports. This data is compiled by each of the four perspectives to understand where the person (or self) is particularly effective and where he/she may need to develop in order to be more effective.

There is a 70/20/10 rule about how all employees develop in an organizational role:

  • 70% of Capability is Due to On-the-Job Experience. Job rotations, special projects, and working outside of the company itself addresses the experience category. A roundtable group of leaders or industry peers also helps.
  • 20% to Coaching. Coaching is a staple for executives, high potentials, and normal successors.
  • 10% to Training. Seminars or conferences are important to develop specific knowledge or leadership skills.

All of these are part of a well-rounded individual development plan. Yet, the current generation’s job is not finished with just the identification and development of a next CEO (the single most important position). They also need to unify and develop all members of the next generation who will own stock, ensuring they are on track to be effective owners and board members. All next generation members need to be effective contributors, or employees, to the family and family’s purpose, unity, and harmony.

In order for a family business to be successful now and well into the future, they must groom all members of the next generation to be effective leaders. According to recent studies, only 30% of family businesses will be successful at transitioning to the next generation; plan ahead now so your business is one of them.

Written by Dan Bean, M.A., M.B.A., Partner, CMA, and trusted First Bank partner. Bean has helped hundreds of organizations of all types and sizes achieve their goals. He assists organizations with strategic planning, organizational development, talent management, and executive development. He has a particular passion for working with family-owned businesses, especially during generational transitions. You may reach Dan Bean at [email protected].