Transition from one generation to the next is failing
Almost half of Canada’s family businesses expect to see an intergenerational transfer of management and/or ownership within the next five years.
But a new KPMG Enterprise report says that over 80 per cent have no formal plans in place to manage the family dynamics of the business, intergenerational wealth, and help prepare future generations to continue the family business legacy.
The report: Family Ties — Canadian Business in the Family Way was developed in co-operation with the Canadian Association of Family Enterprise.
“We know Canadian business families are in good shape and are optimistic about the future,” said Allen Taylor, chair of the CAFE. “However, the general knowledge and understanding of family businesses in Canada is sparse – this study aims to advance the understanding of family businesses, their current and future owners, and the attributes that equate to their success.”
Franco Lombardo, author of Great White Elephant: Why Rich Kids Hate Their Parents and financial adviser to high net worth families on wealth transition, was in Calgary this week and said more than 70 per cent of business successions fail from the first to the second generation.
“And you have the best legal, accounting and investment management minds working with these families … You’ve got to ask yourself: What’s not working?,” he said.
In his stable of clients, he works with six families that have an aggregate net worth of $8.4 billion — three of those families are in Alberta.
“Generally speaking, when it comes to advice on wealth transition and business succession planning, the current focus within the succession planning industry is nearly always upon the technical aspects of the process,” he writes in the book. “This approach is driven by the structural and tax-related issues, and typically never takes into account the emotions of the individuals involved.”
Lombardo said the book, which is out next week, was written with one goal in mind — increasing the odds of success in passing on wealth or the ownership of a business to the next generation.
“Contrary to popular, current industry practices, I firmly believe there is a much better way — and perhaps it’s the only way — to successfully bequeath wealth to your children,” he writes in his book. “The hallmarks of this better way require of those involved the ability to implement the process of wealth transition consciously, intentionally, and with a deep sense of love and in a state of generosity.
“Being mindful of the power of these emotional conditions also serves to create a more appropriate climate for wealth transition since they facilitate receptivity in those to whom the gift of wealth is to be bequeathed, and enable them to grasp the spirit of intention with a similar sense of love and in a similar state of generosity.”
Key findings of the report include: the biggest challenge facing future generations is gaining the right experience, skills and business knowledge while overcoming entitlement issues; the majority of the future generation respondents identified open dialogue, mentorship programs as well as formal training and development as key factors in deciding whether to join the family business; and 90 per cent of respondents believe that family business and industry associations play an important role in their success as well as securing the commitment of future generations.
“Transition of the business from one generation to the next is an area where future business needs and family dynamics do not always align,” said Beverly Johnson, partner, national chair of KPMG Enterprise, Centre for Family Business.
“The future generation will ultimately decide whether the family business and legacy continues; managing the expectations of potential successors should be on everyone’s agenda.”