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Family wealth

Creating a legacy after taking over the family business

ANZ Private

2023-09-13 04:30

Millennials are set to take over from Baby Boomers as the largest generational group in the country.disclaimerHow should heirs assume captaincy of the family business in this new era – without running relationships or the business aground?

Australian family businesses are in the middle of a baton change to the next generation. Back in 2021, researchers found that one-third of Australian family businesses would be transitioning to new leadership by 2026.disclaimerWith about 57% of Australian businesses being family owned or run,disclaimerthat’s a significant segment of the population involved in a transfer of wealth. But with US research showing 70% of family wealth transfers ultimately fail, it’s valuable knowing what’s needed to make it a success.disclaimer

If you’re a member of the younger generation, how do you plan to navigate your part in leadership succession?

The transition can be easier if you start gaining an understanding of the business as early on in your career as possible, according to Shaun McKeon, Director of ANZ Private Banking and Advice.

He encourages heirs to step forward and be prepared to learn.

“One day, you’ll be the decision maker,” he says. “For any business, or even if it’s just managing the family assets, the earlier you are included the better education you will get, and the more understanding you will have of the business.”

McKeon recommends that current owners and future successors prepare for a staged approach to succession.

“It’s got to be a managed approach, with a bit of ‘give’ on both sides,” he says. “That’s so the legacy of the parent-owner [is preserved] and, by the same token, you’re giving some consideration to new voices and maybe to a different future.”

Build a foundation of good communication and shared values

US research has revealed that 70% of wealth transfers fail, and 60% of those failures happen because of a breakdown in trust and communication between family members.disclaimer

In Australia, a 2021 survey of private banking clients by RFI Global found that 78% of private bank customers were concerned about how they might transfer wealth to their descendants.disclaimer

These findings reflect our own experience at ANZ Private. We believe that family disunity represents the greatest single risk to the family business – rather than complicated legal processes or faulty structuring.

But we also find that frank, open, and early dialogue between the generations can keep the family united.

McKeon says the first step in managing a succession well is making sure everyone agrees on what the business and the family stands for. Those values can act as a guiding star during change.

“Over time, values don’t really change even if business conditions and direction does,” says McKeon. “That’s why getting clear on that is important.”

The next step, he says, is to agree on a timeline – one that includes heirs taking on increasing levels of responsibility and the current owners stepping away from the wheel.

Business continuity in the age of ethical consumerism

Ensuring that your family’s business lasts across generations requires more than good succession planning – it also needs a willingness to adapt to changing consumer expectations.

Research shows Millennials and Gen Z are more likely to make sustainable lifestyle choices than Boomers or Gen Xers.disclaimerAnd with Millennials and Gen Z currently making up nearly 40% of Australia’s population, they will be a significant spending force in coming years.disclaimer

McKeon suggests that family businesses can leverage the generation gap to their advantage rather than viewing it as a friction point. Getting input from a family’s younger generation on how to position a business for Millennial and Gen X consumers could be a competitive advantage.

“No matter what side of the fence you come down on regarding sustainability, ultimately it's going to become part of our future because the biggest voting bloc in the world (Millennials) wants it on the agenda,” he says.

Measured steps towards success and succession

That said, it’s best not to jump right into making changes. McKeon recommends the younger generation first focuses on understanding the foundation of the business and taking advantage of the expertise within the business to learn how things are currently done.

One way to achieve this is through mentorship, which heirs report as being the most helpful tool for assisting them to be a future leader and decision maker.disclaimer

“Success is generally driven by incremental improvement at the margins over long periods of time,” says McKeon. “That’s why it’s important to understand where the business has come from and why it’s been successful.”

Collaboration between generations

It may appear that the onus is on the successor to be the student. However, succession is not an event but a journey. And that journey is not one for the heir alone.

If a successor’s role in leadership transition is to learn about the business, the role of current owners may be one of learning about their heirs.

McKeon suggests there be regular conversations between heirs and the older generation, and one-on-ones with the family business adviser, where successors discuss their personal values and vision for the business. He also suggests beginning to implement some of those ideas now.

The benefits to this are two-fold.

“The younger people feel like they’re a part of the process and having an impact on the future direction of the business. The older owners gain an understanding of what their successors want to achieve, and that can then change where they intend to take the business.”

Making your mark as an heir in regards to sustainability

How does a future successor begin to implement a legacy in ESG (environmental, social and governance) practices while preserving a business’ original purpose and continuing growth? The answer is to start with an ESG strategy.

ESG is becoming pivotal to business growth, and yet only 33% of Australian family businesses are putting it at the heart of what they do.disclaimerLearn what developing a net-zero strategy entails. Take the lead in learning how to decarbonise your business footprint, what impact your business has on others, and how any negative effects can be addressed.disclaimer

If you’re not totally sure you have the confidence and trust of the current generation, ask what you need to do to get it, then act accordingly.

Checklist for successors

McKeon suggests these five tips for a leader-in-waiting:

  1. Go in with an open mindset.
  2. Be curious. Find out the whys and hows, and be willing to learn.
  3. Be humble. Understand where your experience currently sits.
  4. Don’t be afraid. Put your ideas out there. Step into opportunities to lead.
  5. Be clear that this is the path you want to take.

How ANZ can help

Seven in 10 private banking clients are optimistic about the next generation.disclaimerAsk for our help with the future of your business today.

At ANZ Private we offer specialised banking and advice and work with high net worth clients to protect, grow and transition their wealth.

Creating a legacy after taking over the family business
Banking specialist
ANZ Private

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