It is no secret that life expectancy has expanded and the world has become more interconnected, family business leaders face an unprecedented challenge like never before. Before our current era, succession in a family business presented a clear and discrete dividing line between generations. There was a time for the family business leader to pass control to his or her rising generation, and a clear set of candidates to evaluate.

The fact with some older family businesses is that these days they are having to deal with scenarios whereby the likes of sixth generation members are older than fifth generation ones. Scenarios may arise whereby, the older G6 members dealing with the younger G5s, lead to many awkward shareholder conversations in which middle-aged G6s are forced to defer to their younger G5 aunts and uncles.

Generational blending derives largely from the natural evolution of the family. What started with a seven-year gap in the fourth generation quickly magnified as family members in subsequent generations made different decisions about when to have children.

But natural evolution is not the only reason that these overlaps occur. Longer lifespans that enable more than one marriage create blended families where parentage and age can also be widely dispersed. Similar questions arise from cultural norms. Consider the Middle East, where children from multiple concurrent marriages are more common.

Further exacerbating this challenge, it is also common for the parents to not share their choices until shortly before, or after, their passing.

In a wealthy family, heirs’ financial benefits can be allocated in many ways. What may seem reasonable and fair to a parent can seem unfair to different siblings who face different situations.

When the ages of next-generation children range widely, family branches and younger-generation children may see their futures differently. For example, when an older sibling who runs the business has children who are years older than their generational peers, those peers may perceive that when their older cousins take roles in the family enterprise, there will be no place for them.

When similarly aged family members from different generations are treated differently by the system, their relationships often become strained. When families are faced with these challenges, it is incumbent on them to recognize the complexity and adjust their policies, rules and practices to diminish the potential for conflict and provide a fair environment for all members.

Focusing less on generations and more on principles the family business is trying to achieve together. These principles and policies anticipate the coming generation extension. They often shift from having branch representation to a situation where employment and roles are given by merit.

Most families refer to generations using G1, G2, G3, etc. With blended families, terminology necessarily changes because certain family members don’t fit neatly into that language. Some families with blended generations move to age cohorts instead of generations. In fact, one family assigned family members to a “generage” group of family members of similar age, rather than generations.

Typical families revisit their planning horizon with every new generation, often averaging every 25 years or so. Some families with blended generations have found it more effective to shorten their planning cycles to incorporate the ideas of each new cohort, rather than each new generation.

Family-owned businesses are competitively advantaged in the 21st century. But those advantages do not come without their own challenges. As family enterprises continue to succeed over several generations, they will undoubtedly face the challenge of growing age differences within each generation.

 

 

( All factual and statistical information presented in this blog has been obtained from an extract of an article from the familybusiness.com ) Follow us on our Facebook page and Family Business Office website at www.familybusiness.org.mt

At the Family Business Office we can offer you assistance in dealing with family business succession planning issues through incentives supporting advisory and mediation services. Contact us today on familybusinessact@gov.mt.