By the SMU Social Media Team
Family firms wield economic clout, particularly in emerging markets. Indeed, some of Asia’s most prominent companies are family firms which have been the driving force behind the economic development of the region. Mckinsey predicts that that by 2025, 40 per cent of the world’s largest companies will be family or founder-controlled firms, up from 15 per cent in 2010.
It’s easy to see how joining the family firm can be an appealing option for millennial graduates—but is taking this career route really a recipe for success? Or is it more likely to be a source of intergenerational angst? McKinsey also reports that only 30% of family firms survive beyond the third generation.
We asked Professor Annie Koh, Academic Director of the Business Families Institute (BFI) at Singapore Management University, for her insight on the opportunities and challenges for millennials entering the family firm; and how the firms themselves can embrace the talents of the next generation.
What motivates entrepreneurial millennials to join the family firm rather than blaze a trail of their own?
It’s a combination of factors including commitment, passion and prestige. Many millennials are compelled to seek a career in the family firm out of a sense of responsibility and wanting to contribute. Joining the family firm can also present an opportunity to gain managerial experience and independence early on in their careers, and the role may come with better rewards and job security in an uncertain global financial market.
Is it likely to be a recipe for success or source of intergenerational tension? Is the family firm, with a focus on long-term stability, the right place for millennials, who look for a less rigid corporate structure?
Every case is different but attracting and retaining millennials is critical to the future of all businesses. According to a recent PwC survey, the millennial generation—born between 1980 and 2000—are shaping the workforce today. As such, it’s necessary for family firms to learn and manage their attitude and expectations of the next generation in order to ensure the continued survival of the business—and there are many advantages to be enjoyed by doing so.
Millennials have grown up during the technological revolution and so bring a fresh perspective on innovation and a raft of technical skills. Many will have travelled and have been educated overseas and so bring the internationalist mindset needed to build a bigger, diversified and stronger business. Millennials are also risk-aware rather than risk-averse—they are confident, ambitious and have a fearless approach to change.
Is it better for millennials to gain experience outside the family firm first?
Not necessarily. The talents of the next generation can just as easily be “incubated” inside as outside the family firm. For example, some are given a chance to run a spin-off enterprise first and eventually merge it with the main business. This is helpful as it enables the next generation to mature on their own and give them a platform to individuate and differentiate.
Equally, we are now seeing families starting to do family business ‘swaps’ whereby the next generation family members are coached at a firm outside their own, by somebody other than their own family members. This can also be an effective approach. For example, Myanmar-based Great Wall Group’s next-generation members are doing their internships in Wilmar as both companies have a joint venture business.
How can the family firm prepare itself and evolve to accommodate the younger generation?
First, start early and engage the next generation through philanthropic activities. This gives up-and-coming family members something to take ownership of that’s aligned to their interest and passion, and to develop their leadership and organisational skills as well.
Second, set the stage for proper mentorship and create a structured development plan. This is key to preparing the next generation for the responsibility of leading the business in future. It could mean placing them on a rotation to learn the different areas of the business with non-family mentors throughout the period until he or she has learnt the ropes within the diverse areas of the business.
Research by McKinsey suggests only 30% of family firms survive beyond the third generation—why is this?
At BFI, our research into case studies and evidence of best practice have identified several pitfalls to succession including family dynamics—differing visions and lack of communication between generations; complacency and poor succession planning and transition; and there may also be a lack of trusted advisors and limited governance structures within the firm. Perhaps the most fundamental pitfall is that there can often be a lack of commitment and readiness of the next generation to take over the management of the business.
What are the key considerations for millennials deciding whether or not to join the family firm?
Millennials joining the family firm need motivation, passion and competence to lead the family business. As well as educational and professional qualifications, they need experience and exposure to the family business itself. Equally, there needs to be support and consensus among the current and next generation as well as the employees.
The next generation also needs to be committed to perpetuating the family business not simply for themselves, but for future generations. Essentially, millennials should ‘Think Generations’, ‘Think Growth’, ‘Think Giving’ and ‘Think Global’.