When the Next Gen wants to fix the family business

ELECTION fever aside, a rather interesting conversation cropped up during a meeting with a few corporate tycoons recently – the all-important question of succession planning.

Most of the corporate chieftains have children all ready and qualified – in legal terms at least – to join the labour force. The question that cropped up was whether these offsprings should join the family business and succeed it, or work outside the family business for a few years.

In the few years outside of the family business, the offsprings are expected to learn the rough and tough ways of managing a business and eke out a decent living before coming into the family business.

This group of people wanting to succeed the family business are called the Next Gen. Do not mistake them for the “generation next”, who are often referred to as the millennials, however.

Also, do not mistake the Next Gen for children suffering from what is termed the “rich kid-itis” syndrome. It is the worst nightmare of any parent, no matter how much wealth they have accumulated.

Children suffering from the symptoms of “rich kid-itis” are those who are showered with so much money that they don’t know how to earn it. They run a five-figure tab during a night out, pop expensive champagne, drive flashy cars and go on holidays almost all-year round.

In short, they do everything and anything to spend the family fortune, except work.

The worst of the lot end up not working at all and spending money like there is no tomorrow. Many do not get through an expensive education and have bad work ethics. If they end up inheriting the family business, the likely scenario is that the company would either be taken over, go bankrupt or the shareholders will end up throwing them out.

The Next Gen are those who are better groomed, care a lot more for money than the “rich kid-itis”, have gone to the best schools that money can buy, and gotten the right exposure by working in the best places a young person would die for.

This normally entails a stint at a stock brokerage where the training is rigorous. The more fortunate Next Genners would have stints in many more places that would help them provide leadership in large companies.

For instance, Sharifah Sofia Syed Mokhtar, the daughter of Tan Sri Syed Mokhtar Albukhary, who has been appointed to the boards of DRB-Hicom Bhd and Pos Malaysia Bhd, has an impressive training experience.

She has had stints in the Congressional Office in Washington and the famous Grameen Bank of Bangladesh and has acted as the external consultant for the Bill & Melinda Gates Foundation. Sharifah was also the special officer to the group chief executive of Pos Malaysia for 10 months before being appointed to the boards of both companies.

And she is only 24 years old.

The biggest challenge for the Next Gen who want to take over from their parents is doing it better than them. They have to navigate the ship when the tide turns. They have to look at how to grow the business – in the best and worst of times.

It is relatively easy to run the business when times are good. However, it is a whole new ball game when the going is tough, when the business starts to fail and cash flow falls, and worst of all when the traditional business model becomes irrelevant in the age of technology.

Overcoming the challenge to stay the course of a family business is not an easy task. It is something that is not taught in the best of universities or graduate schools.

So, how do parents nurture the Next Gen to succeed their business?

The owner of a chain of hypermarkets says its policy is for the children to work outside the family business for at least three years. They are to gain experience in any field. And the door is open to them to return to the family business should they choose to.

The Mydin group of retail stores practises such work ethics for those within the family joining the group.

The better teacher

Another businessman says he encouraged his son to join him right after college because he felt that there was no better teacher than himself to guide his son on the travails of the business world. The father, who built the business from scratch, feels that he can provide the best guidance for his son to take over the family business. There is no right or wrong in both paths when the business is running well.

However, when the business runs into a rough patch, the external experience tends to help turn it around. Working in an environment away from the comfort of the family business helps build character.

A developer whose two children are in the business saw himself drowning in debt during the 1998 economic crisis. It was because he was holding too much unsold property.

But it was the eldest son who was not in the family business initially that helped turn around the company. He counted on his acquaintances that he had nurtured when working outside the family business to help rebuild the property business.

The son says he would not have been able to do it if he had also been involved in the family business. It was his external contacts that assisted in the recovery.

To a large extent, working outside the family business helps build character and a network of business contacts that are so vital when times are tough. The work experience gained outside will someday come in handy to save the family business.

For the Next Gen, it is best to have a stint outside the family conglomerate before joining the business to fix its problems and make it even better.