Another aspect of prepping the next generation is to establish a framework for managing conflicts in the family, which are not uncommon. Succession planning requires contemplation about change, retirement, and mortality, all of which are uncomfortable topics and can create tensions across the generations. The more deliberate thought is given to these topics, the better the succession planning will be. The EY Global Next Generation Program, which works to connect family business successors around the world, can offer needed perspective on these challenges and assist the next generation in navigating them.
Establish communication norms
Establishing communication norms are another essential dimension of succession planning. This has to do with building solidarity among family members through activities such as collaborating on philanthropic projects and through working together on drafting succession-related documents, such as family constitutions. Preparing these documents can facilitate understanding about a family’s legacy, flesh out the sources of tension and disagreement, and confirm the next generation’s commercial and familial roles during succession6.
Because the history of family business is comparatively short in China, many firms are still owned by the first generation and have not yet planned their succession; as a result, they have not set up the kinds of communication channels needed to ensure family members are on the same page about the future of the business. This is partly because they do not have many benchmarks for doing so, which is to say that succession planning is a relatively nascent idea in China. However, with many founders nearing retirement, the need to put a plan in place has gained urgency, making communications a central challenge.
Promote entrepreneurial thinking
This may seem intuitive, but friction can arise when the next generation has very different ideas about management and strategy than the founding generation. Finding the balance between the family business’s heritage and the demands of a quickly evolving marketplace is an acute obstacle, but it is one that must be overcome. As with most things, compromise from both generations about strategy can go a long way toward facilitating collaboration between family members and giving the family’s future leaders a sense of real ownership.
An example of this is the way in which some family businesses are diversifying into other sectors or evolving traditional businesses to include new, technological focuses. Driven by the next generation, these changes in direction reflect something of the independent-mindedness of these future leaders and their desire to prove themselves in their own way.
Family business outlook in China
The challenge of succession among China’s family businesses is acute. Some families have considered and even moved forward with bringing in an external manager to succeed the founder. However, given the cultural importance of loyalty in Chinese families, many would prefer to keep succession within the family. We are yet to see whether current generational tensions will subside over time.
Another trend is the development of what are becoming known as “business families,” where multiple businesses may be owned and operated by family members. In this model, preserving the original family business becomes less important than maintaining the family’s value system and entrepreneurial spirit. Because of the generation gap and the associated tensions between Chinese founders and their children, adopting this approach may help give the next generation the necessary leeway to evolve the existing family business or pursue new opportunities.
China’s family businesses are beginning an important chapter of their stories. As many prepare for their first generational handover, deciding what to prioritize, how to align the multitude of individual interests within a family, and how to perceive the challenges and opportunities in the market, have become pressing challenges. The steps outlined above are integral to the succession process and will help families undertake the difficult conversations and planning that are inherent in successful transitions.