Large transfer of wealth, during which baby boomers are projected to pass trillions to their heirs has been a hot topic for some time now, but will finally come to fruition over the next few decades. According to Cerulli Associates, between now and 2045, Generation X and millennials will inherit $84 trillion. Consequently, many are concerned about whether their heirs are equipped to handle such a large influx of wealth.

One aspect of this transition that is less talked about is the need for a seamless transition in passing family businesses to future generations. While there is already a spotlight on the next generation and their wealth readiness, we must use this time to consider how we can best prepare and engage them as tomorrow's leaders. This can be complex, but engaging the next generation early on, giving them a seat at the table and designing the right roles can help family business owners navigate the transition.

Engagement of the next General

Ideally, business owners should engage the next generation at a young age. The key is to inspire them and create an attraction for that business within the family. Older generations can work to keep them curious and interested by conveying the impact of the business to customers and family. The best way to engage members of the next generation is to understand where their passions and interests lie and then explore business areas to apply these passions. If the next generation feels a real connection to the business, they are more likely to find purpose and meaning within it. This can also help avoid feelings of dismissal, which can cause next-generation leaders to pursue unrelated careers or move on to start their own companies.

A seat at the table

Allowing the next generation to make a connection with the family business is just the beginning of the journey to truly nurture their future leadership. They need to feel like they have a seat at the table, an opportunity to learn and, most importantly, a chance to fail. While this may initially feel uncomfortable, older generations must create the space for future leaders to take risks and fail in a controlled manner. After all, the cost of controlled failure when the older generation is around is less than the cost of failure when they are not around to give advice.

The willingness to embrace failure or take risks can be a point of tension between generations as older generations develop an increasing aversion to risk over time. On the other hand, a rising generation may be more comfortable taking risks as they perceive that the time to recover from a failure is much longer. They also have more relative time to try to make an investment successful. Conversely, older generations may struggle to see how innovation and risky ventures will become profitable.

Although this often leads to clashes in comfort levels, it becomes even more important that current and future generations of leaders align with the value and benefit of taking risks today. Businesses can create a strategy that allocates resources towards things that may never work during the lifetime of the older generation, but may benefit the business when the younger generation is in charge. When both generations match this, the potential for success down the line increases.

Designing the right roles

While succession planning is about identifying and preparing the right people for future leadership, it is also about designing the right roles for the next generation. People in positions of power often make the mistake of looking for a successor who will do the job exactly as they did it. In most cases, this candidate does not exist. The task at hand is not for business leaders to look at their succession selection and ask, who can do my job? Instead, they should consider the role itself and how it can be executed by other people through their strengths and expertise – including considering the operations to be done and what qualities other people possess that will fit the puzzle better.

At times, older generations are held back from properly engaging the next generation due to the older generation's perception of the next generation's lack of qualifications and experience. Families may unknowingly “raise the bar” for future generations to unattainable heights. In some respects, this is expected as a business grows and becomes more complex. However, it can also occur due to the same risk-averse attitudes discussed earlier. When the bar is set too high, it can hinder the next generation's ability to participate in ongoing business leadership Recognizing these biases and “resetting the bar” as appropriate can be a useful exercise.

There may also be a lack of effort from the older generation to engage in continuity in some cases, especially when they enjoy their current role in the enterprise and are not ready to give up their place. While it is difficult to think about leaving, facing this inner connection must be faced head on. Older generations can use their passion for their work to find ways for younger generations to reap the same benefits and find their purpose in the enterprise. As long as the right amount of time and effort is put into doing this, leaders can find great pride in helping the next generation thrive – leading to more success for the family business in the years to come.