The next generation can take family businesses forward with the right governance and succession planning.Getty Images
About 20 years ago, Karen Alko’s family decided to implement a governance structure within their company, ABC Recycling Ltd., which has locations in B.C. and Alberta. At the time, family members were having trouble moving forward on some critical business decisions.
“Things began to fracture. It’s family, it’s complicated,” said Ms. Alko, who is the fourth generation involved in the family business and serves as manager, community relations.
At The Globe and Mail’s April 28 webcast on “Family Business Planning: Strategies for next-gen success,” Ms. Alko said creating more structure and hiring a family adviser was the best decision for the family and the business. “We couldn’t do it on our own,” she said.
Six out of 10 Canadian family-owned businesses will be passed on to the next generation in the next decade, accounting for the biggest transfer of wealth in this country. Not all successions are successful, as family dynamics and business sometimes don’t mix, said fellow panelist Peter Jaskiewicz, academic director of the Family Enterprise Legacy Institute, Telfer School of Management, University of Ottawa.
“We know that, for example, in Europe there are almost 700,000 businesses passed on year by year and roughly 200,000 of them get into deep trouble. Often it’s because there is too big of a gap between the generations,” said Mr. Jaskiewicz.
To bridge it, the generation in charge now has a responsibility to lead through proper training and by giving the next generation a say. Sometimes, the generation inheriting the business is ignored until they’re in change, and that can be too late, he said.
Family enterprises can be wrought with emotion as it can be difficult to separate the familial ties and business. Employing the right governance structure within the family business can help, said Tasso Lagios, managing partner at Richter, one of the largest business advisory and family office services in Canada.
“It’s really just the structure and process to provide a kind of code of conduct that builds trust, accountability and empowers people,” said Mr. Lagios. “That’s really what governance is and there’s a lot of benefit to having that in a private company, especially when you’re looking at gen two and gen three coming into these family businesses.”
He said family businesses often use a board of advisers and a board of directors, and can also benefit from a family council. Councils are more about guiding a family around issues like differing levels of business involvement among different family members, and what compensation is allotted to family who are and aren’t active in the business.
There is no set governance structure for family businesses, said Mr. Lagios. “Everyone creates what works best for them.”
Passing on the family business means that the generation currently running it and those set to take it on should start having discussions early around the dinner table, said Mr. Jaskiewicz. The next generation needs a level of exposure to the business and their identity as a family enterprise.
“It’s important to create this fire they have for the business and with the family, and help them learn to interact with each other. Families that do that do much better,” he said.
For Rohit Chauhan, whose parents worked at their Tim Hortons franchise, “A lot of our [family] conversations were about the business.” He’s a franchise owner himself now; the family owns 19 franchises in the Toronto area. Mr. Chauhan says his own children, who are still young, will have the option to get involved down the road, but there is no expectation for them to do so. He doesn’t want to make everything about the business and “force feed at an early age because that could turn them off.”
As businesses get passed along to the next generation, one benefit might be a new focus and fresh thinking around concepts like ESG (environment, social, governance) and digitization. That can make family enterprises more in step with today’s business landscape and consumer.
“Now that Gen X and Gen Y are in a position of authority they can make the decisions that lead to a more sustainable future. I believe that the next generation is inherently just more optimistic. We have this strong belief that we can still change the world,” said Mr. Chauhan.