Making the Family Enterprise Appeal to the Next Generation

Family employment vs Family Entrepreneurship

The desire to pass on a family enterprise to the next generation is a common aspiration among the leading generations of such families. However, achieving this goal requires a delicate balance of multiple factors that should be guided more by wisdom than luck.

Notably, the approach that the leading generation takes to family employment, and their support for the entrepreneurial ambitions of the next generation, is a key factor to consider, above all, in medium–large families. This approach requires the leading generation to be more thoughtful, engaging and process driven than in the past to better fit with the new cultural traits of the rising generation. 

Demographic research shows significant changes as Generation Y (millennials) and Generation Z (centennials) exhibit specific trends unlike previous generations. Generation Y is generally characterised as tech-savvy digital natives who are socially conscious, possess entrepreneurial spirits and value personal development while searching for an adequate work–life balance. In contrast, Generation Z is known for having relatively shorter attention spans, an education-centred mindset, financial conservatism, pragmatism, a global perspective and a strong commitment to diversity and inclusivity. Because career intentions vary across generations due to a combination of societal, economic, technological and cultural factors, it is essential to consider these aspects when developing policies to encourage or incentivise the next generation’s involvement in family enterprises.

The forward-looking demographic perspective should not make enterprising families forget certain aspects that remain critical success factors for longevity despite the passage of time. For instance, designing family policies solely to maintain control over younger generations as they reach adulthood is one of the main avenues through which the longevity of family enterprises may be lost. Family employment cannot be seen as a psychological mechanism that transforms the parent–child relationship into that of an employer and an employee.

Risks of failure can also arise in these endeavours when parents consider family employment as a means of providing economic security for the next generation. Feeling a moral obligation to find jobs for the youth can result in paying insufficient attention to assessing their commitment, preparedness and suitability. As a consequence, birthright replaces merit in decision-making, and those who are more talented may be discouraged from getting involved in a family enterprise because they may feel that their contributions and achievements will not be valued or recognised objectively and professionally.

Developing family employment and family entrepreneurship policies is a useful mechanism for taking the right approach to attract and engage the next generation. Any family policy should be aligned with the characteristics of the family and the enterprise while considering the evolving expectations and behaviours of the rising generation.

There is no one-size-fits-all method. Such policies should also prevent senior family members from blending their parental roles with their business responsibilities, a conundrum that is always a source of tension in both small and large families. 

Thus, a central question arises: What can senior family members do to make working in a family enterprise more appealing to future generations? An analysis of a sample of successful, long-lived international family enterprises reveals four best practices. 

Formalise Expectations to Prevent Frustrations and Conflicts

Some children may harbour a desire to join the family business from a young age, which can be driven by personal inclination, parental obligation, emotional attachment or a desire to uphold tradition. Above all, in these cases, parents must not present a position to work in the family enterprise as automatic or as a right stemming solely from their family name. On the contrary, whenever possible, young individuals should be encouraged to first gain work experience outside the family enterprise and then to put themselves forward to be assessed to join the business.

When they choose to nominate themselves for a job position, the recruitment process should be conducted professionally and fairly, offering well-defined organisational roles and career opportunities to mitigate family tensions. Finally, every time a next-generation member enters the recruitment process, senior family members should find the courage and honesty to provide the same feedback they offer to non-family members. This includes saying ‘no’ to candidates who are not properly motivated, prepared or suited to work in the family enterprise.

Best Practice

A family employment policy details the procedures and criteria for hiring family members within the family enterprise. This can help the next generation orient themselves in the process and prevent potential tensions and frustrations that may arise in these circumstances. It can also help the leading generation avoid clashing their parental affections with their business responsibilities. 

Implement a Career-Planning Process 

Since 2003, the Global University Entrepreneurial Spirit Students’ Survey (GUESSS) has surveyed a large sample of university students to monitor their career choice intentions. The latest report issued in 2021 is based on data collected in 58 countries from more than 267,000 students. The findings revealed that only 1.4 percent of respondents aspired to join their family business after completing their studies, with merely 2.5 percent of the total sample intending to make this choice within five years of graduation. The majority of students who grew up with a family business preferred organisational employment careers, which include working abroad in medium- or large-sized companies. These are environments where they can learn and independently develop their skills without any favouritism that could stem from being part of a famous entrepreneurial family.

The data from the GUESSS project prompts thoughtful consideration. If the next generation seeks organisations that nurture their talents and competencies, family enterprises must demonstrate their capacity not only to attract them but also to offer adequate career paths and packages that are perceived as internally and externally equitable. These students expected best practices in human resources management to be applied in their family enterprise as well.

Best practice 

A family employment policy should define the processes and structures to manage the career phase for the next generation, taking into account delicate aspects such as compensation.

Support Entrepreneurial Careers

The GUESSS project revealed another significant insight: about 20 percent of the respondents expressed a desire to establish their own start-up companies after graduation, while about a third of the respondents wished to be entrepreneurs five years after completing their studies.

This data reflects a well-known trend: an increasing number of next-generation individuals are not interested in family employment policies but rather in how their family business can support their entrepreneurial attitudes and dreams.

This entrepreneurial drive has key advantages. Some next-generation members may develop new businesses that can eventually be integrated into the family’s domain. Others might perceive their initiatives to be lifelong pursuits, leading them to assume non-active shareholder roles within legacy family businesses and simplifying future succession decisions when there are multiple talented heirs but limited top positions available within the business.

Encouraging the next generation to experiment, embracing potential failures as learning opportunities, providing financial support (e.g. venture capital), and offering mentorship are all valuable approaches to attract family talent and nurture a sense of belonging in and attachment to the family enterprise.

Best practice 

When the next generation exhibits entrepreneurial traits and ambitions, enterprising families should consider crafting a family entrepreneurship policy to outline the extent and manner in which the family enterprise can support the next generation’s new ventures. 

Make the Family Business a Champion of Sustainability

Generations Y and Z exhibit a heightened focus on environmental and social responsibility; they recognise that business responsibilities go beyond profit maximisation. This awareness is particularly pronounced among heirs of significant wealth in an era marked by constant depictions of inequality across social media.

Enterprising families can benefit from this trend by expanding the spectrum of career prospects to include options such as working for non-profit organisations, engaging in social entrepreneurship, or contributing to family foundations. Certain next-generation members may also find their calling within the business by taking charge of corporate social responsibility initiatives.

Best practice 

Both family employment and family entrepreneurship policies should include guidelines that address socially responsible and sustainable issues to attract family candidates more attuned to these topics.

Conclusion 

Making family enterprises appealing for the next generation is even more possible when leading family members take the right approach to planning the future. This requires extra attention, active listening and a boldness to innovate. Furthermore, as family enterprises expand in size and complexity, developing family employment and entrepreneurship policies can be instrumental in preventing tensions and frustrations within the family enterprise on topics where emotions and personal affections can easily clash with organisational and business rationales.

Author: Paolo Morosetti