Local Family Business Leaders Fear Next Gen Isn't Ready to Lead

Horsham, PA…Who will run the family business when today’s leaders have gone?

A growing percentage of Greater Philadelphia family businesses now have a formal succession plan in place to answer that vital question, with most relying on the next generation to lead the business into the future, the Kreischer Miller 2019 Family Business Survey found.

Nearly 63 percent of respondents said their companies have leadership succession plans in place, up from 49 percent when the survey was last administered, in 2015. And more than 80 percent of companies with management succession plans report that those plans included family members. But is the next generation ready and willing to take on such roles? Those currently leading aren’t sure.

The senior generation ranked the lack of next generation talent as their most pressing concern among those listed on the 2019 survey. This lack of confidence may also be leading some businesses to delay succession planning; of those family businesses who said they have no succession plan, 34 percent identified next generation availability/readiness as the biggest contributing factor.

Yet, nearly two-thirds of the companies responding to the Kreischer Miller 2019 Family Business Survey said they have no formal development and mentoring plan in place to prepare the next generation.

“The increase in succession planning is an incredibly positive development, especially since more than half of this year’s respondents say their business’s senior leadership will retire within the next five years. But that’s only half of the equation,” said Steven E. Staugaitis, a director at Kreischer Miller and a family business specialist. “Leadership transitions are a vulnerable time for family businesses. The next generation of leaders – whether strictly family members or not – must be prepared to run the company. Livelihoods and legacies are at stake.”

Preparing the Next Generation to Lead

Because leadership development is such a critical need, it can’t be left to chance – a formalized development plan is essential, Staugaitis said.

The first step is identifying the right leadership candidates. Leadership skills – the ability to motivate and encourage people and hold them accountable – are just as important as technical competencies related to the specific business, Staugaitis said. Future leaders must also be flexible – the ability to meet the company’s needs today won’t be worth much if those needs are completely different when the future leader takes on that new role.

No matter how much potential they have, a company’s future leaders need time to develop their skills. “The most common leadership development problem that companies have is not doing anything or waiting too long to start,” Staugaitis said. “Unfortunately, the results of our 2019 survey show this is still happening.”

Some best practices in leadership development include:

• Rotating future leaders through many different roles and departments within the company.
• Assisting them in achieving related advanced degrees and/or participating in educational seminars that focus on leadership development goals or needs.
• Building mentoring relationships with current leaders within and outside the company.
• Participating in Next Generation Peer Groups where rising leaders can support and learn from each other.
• Establishing an Advisory Board that will help guide and support the next generation of leaders and hold them accountable.

Creating a leadership development plan and providing the called-for components takes time and intentionality. Companies may want to engage the help of outside advisors to set up frameworks, identify educational opportunities, and get the process started, Staugaitis said.

About the 2019 Kreischer Miller Family Business Survey

The newly-released 2019 Family Business Survey, administered electronically in the first quarter of 2019, was comprised of survey data from approximately 100 family-owned businesses in the Greater Philadelphia region, including southeastern Pennsylvania, southern New Jersey, and northern Delaware. The largest pool of respondents, 33 percent, identified their companies as second-generation family businesses. The majority of survey participants work in manufacturing, construction, information, and the wholesale trade.

About Kreischer Miller

Kreischer Miller is a leading independent accounting, tax, and advisory firm, serving the Greater Philadelphia area since 1975. The firm is built to respond to the unique needs of growth-oriented private and family-owned companies, helping them smoothly transition through growth phases, business cycles, and ownership changes. Kreischer Miller works with a large number of family businesses, helping them make successful transitions. The firm has developed a unique, integrated process that blends family counseling, financial analysis, valuation, transaction structuring, compensation planning, corporate finance, taxation, and estate planning under an umbrella of business advice to the family. To learn more, call 215.441.4600 or visit www.kmco.com.