Family Business Transitions: How to Use Assessments to Prepare the Next Generation
In our work with family leaders, we commonly get asked questions like: Is the next generation ready to lead the family enterprise? How will they change the vision of the business? Can they be plugged into x, y, or z role?
These complex questions are immensely important and cannot be answered simply. Family enterprises face a challenge unlike any other in business. Around a third of them fail in the transition from the first generation to the second. Another third fail in the following thirty years as they transition from second to third generation. And for those organizations that make it sixty years, about 16% fail in subsequent generational transitions.
Family enterprises face an uphill battle as they grow. Succession planning, backed by robust assessment, plays a vital role in preparing for generational transitions. It is not uncommon for smaller family businesses to have no succession plan at all. Despite the risks associated with family business transitions and promoting family members too quickly, many organizations do not undertake a formal leadership assessment and evaluation process before passing the enterprise to the next generation.
Where family is involved, emotions follow. Although the emotional side of the equation should not be ignored, these emotions can lead to costly decisions, particularly at the critical stage of succession planning.
Do you know (not “think”) that the next generation can lead the family business?
Rather than rely on the parents’ sense of what would be a viable or necessary career path in the business for their son or daughter, conducting an in-depth assessment of the family member’s leadership style and motivations provides objectivity to an otherwise emotional decision. Conducting assessments tailored to the realities of the family business is an invaluable tool in mitigating the risk of an unprepared successor and understanding the leadership needs of the family enterprise. Further, by creating insights into key areas of development, the process also serves as a rich learning opportunity for the rising generation, who may have never been given objective feedback on their performance.
While conducting assessments is not the only action that a family enterprise should take as part of succession planning (further actions would include training, exposure to aspects of the business, mentorships, work experiences outside the enterprise, etc.), assessments provide invaluable insights and set the stage for impactful ongoing development that could mean the difference between choosing someone who just might be able to run the company, to investing the time and energy in preparing someone who is both interested and able.
What family business leadership assessments look like
Take in the full picture
Using an assessment that brings together multiple data points from psychometric tools and interviews – both self-reporting and incorporating feedback from others – will lead to the most useful insights, both for parents and their children. A leadership assessment for a family business member, like any leadership assessment, needs to take in the unique context of the organization. However, unlike other assessments, it must also be sensitive to family dynamics. A typical leadership assessment for a family member should explore career history, leadership capabilities, personal values, interests and motivations, as well as the interpersonal “rough edges” that need to be addressed.
Create a “Fair Playing Field”
While the assessment should be grounded in the realities of the family business, it should also create a “fair playing field” where every member of the next generation has the opportunity to be seen at his or her best, separate from the potentially biased lenses of the family system, history, and organizational dynamics.
For example, we worked with a company where one rising family member earned the reputation of being entitled and not hardworking. He felt defeated about his future in the business, but revealed during the assessment a strong drive to become the future CEO and continue the family legacy. He’d also achieved some impressive results throughout his short career that he was not getting credit for within the family.
By giving him an objective space to discuss his achievements and motivations, the assessment results reestablished him in the business as a potentially viable candidate for future leadership roles, while also clarifying his developmental areas and giving him critical feedback.
Assess to a framework of potential
In our work with family-held organizations, we have learned some key lessons when evaluating the rising generation. Most importantly, it is common that junior family members do not receive feedback on their performance or how they are progressing towards broader competencies associated with senior leadership. As a result, it is critical to build an assessment process that explores and reveals objective indicators of leadership potential to foster and build developmental plans that correlate to a framework of potential. In this way, coaching and other developmental offerings can be curated to set the stage for success for each member of the rising generation.
Flex to meet the rising generation where they are
It is also important to adjust the assessment process to the developmental level of the rising generation and account for the tremendous opportunities available to them. Rather than assuming a certain big role will be a good fit or guaranteeing a future role to a family member not ready for it, tailor the assessment process to tap into the skills the family member brings to the table now, as well as diving into their aspirations for the future. When the assessment can elicit this information, and is tied to a framework of potential, it becomes easier to establish the right sequence of developmentally appropriate roles for a successful transition of leadership that enhances the legacy of the family enterprise.
Build in the opportunity to receive objective feedback from assessment results
Assessments give family members the opportunity to receive constructive feedback they may not otherwise get. It can be difficult to prove oneself as a credible successor to one’s parents and the rest of the business; whispers of nepotism and entitlement circle the watercooler and can reduce the confidence and followership of the rising generation.
Constructive feedback is often a rarity in family businesses. One senior family leader disclosed to his Vantage coach that the last time he had received meaningful feedback was when he was playing on his college soccer team. A lack of feedback reduces reflection, understanding of a leader’s reputation in the organization, and how to build followership in the enterprise.
Giving and receiving feedback between family members in the workplace can be harder still. It can seem as though everyone has an agenda. Many employees avoid giving family members feedback at all; it is not uncommon for family members to go without constructive feedback from their bosses for fear of retribution. This is a recipe for disaster and negatively impacts individual development.
When handled with skill, the objectivity and insight uncovered in standardized assessments translates well into developmental feedback. Assessors play the role of outsiders without an agenda; they are able to clarify development areas and guide the family member in creating a plan to address these opportunities.
Get clarity before the transition
There are many reasons why family businesses fail; however, it is clear when they fail. The crucial finale of succession planning – a handing over of the reins of the business to likely under-prepared heirs – is a high-risk situation that can either accelerate or destroy the enterprise. With these stakes, robust assessments of family members are a highly valuable and critical component of any family business succession plan. A thorough leadership assessment of family members provides the objective insight to act with clarity, the opportunity to uncover potential, and sets the stage for thoughtful preparation before the moment of succession.
How do you and your family prepare for the transition of leadership? Have you used assessments to assist in deciding your successor? We would love to hear from you in the comments below.
This post was co-written by Eileen Linnabery.