Family office: how should the second generation of the family prepare for succession?

At present, nearly 3 million family businesses in China are entering the inheritance stage, and more and more second generations are coming to the front. For the second generation, how to successfully pass the succession pains and enter the real succession state?

This article is an excerpt from the book “Inheritance: A Relationship and Its Hidden Power” about the second-generation succession. This part of the content answers the above questions in detail. The article is slightly deleted for your reference.

#01.
# How does the second generation enter the real succession state?

Succession is not a necessary option for the second generation, which needs to be combined with their own actual will and ability, consider the actual situation of the enterprise, and make a choice on the basis of full communication with the wealth creation generation.

Once the decision is made to take over, internal control of a single project, or internal and external joint venture is also an option, the purpose of which is to minimize the cost of trial and error, to simulate the real business operations that will be encountered in the future, in the process to make up for the lack of their own entrepreneurial personality.

One of the biggest challenges comes from the sudden and deep intervention of the wealth-creating generation. Whether this is due to real worries or the disclosure of entrepreneurs’ controlling personality, the second generation will not be able to truly face uncertainty and pressure, and it will be difficult to improve their ability and personality. It will also miss the opportunity to understand the connotation of entrepreneurship and understand and approach the inner world of the wealth-creating generation under pressure alone.

Whether you can become a qualified successor has a lot to do with the natural personality part of the second generation-temperament and mind. In the process of growing up in the second generation, some temperament is very similar to the father, some may be more like the mother, and some even have the opposite character of the father (mother). If the second generation does not have the desire to work hard and has no feeling for running a business, taking over the business is not necessarily the only way to inherit it.

Through a mature governance structure, the second generation can still continue to control the family wealth, for example, as a shareholder, not necessarily really involved in the board of directors or management. The core point here is that the two generations must communicate well. Even if there are repetitions in the middle, they cannot be avoided. They need to be open and listen to each other.

The second generation put forward the idea of succession. The previous generation should not blindly deny or agree with it, but should sit down and make a rational analysis, because it is related to the long-term future of the family business and the happiness of the children themselves.

#02.
# Minimizing trial and error model

Once a consensus is reached on succession, it is an option to start training within the enterprise, such as undertaking some challenging projects, from project planning to resource collaboration, to the use of human resources and market expansion, which is a simulated scaled-down version of entrepreneurial training.

A certain project today may be equivalent to the scale of the enterprise in the early stage of the wealth creation generation. In fact, all elements of the enterprise operation have been covered here. The cost of trial and error is relatively low, and while giving the second generation relative independence, the pressure is proportional to the size of the decision-making power.

In the real competitive environment, the second generation’s ability to resist pressure and potential will be stimulated, exposing shortcomings and advantages, and then we can distinguish whether it is the limitation of ability or mentality, or there is room for growth and progress in temperament and management methods.

Another situation is that the group is large in scale and can be handed over to an independent branch of the second generation, or a certain emerging business sector, where the financial accounting and personnel systems are relatively independent, allowing the second generation to initiate internal entrepreneurship outside the existing structure of the enterprise. The company can finance and lend a start-up capital to the second generation, fully comply with the rules of market operation, and then create a model of a start-up company.

The last one is to let the second generation completely leave the enterprise itself and go out to start a business alone. This process will also expose the part of the personality of the second generation entrepreneurs that needs to be filled.

All of the above are ideal models, but the reality is far more complex than that. For the second generation, they tend to believe too much in their abilities and want to get rid of the influence of the previous generation as soon as possible and live their own appearance. Some second generations do not want to bear the ultimate pressure, just hang a virtual position in the group.

Or the rich generation only let the children learn with them, but not let them bear the actual responsibilities and rights, so that the real pressure is pulled out, the second generation will feel worthless.

#03.
# Operating pressure alone

The first generation of entrepreneurs who create wealth often have a low tolerance for the failure of the second generation of experiments. They often become extremely nervous with a little problem, and then get involved too deeply. In this way, in the face of the final result, it is actually difficult to say who is responsible.

The real problem of intergenerational eruption is because of crossing each other’s borders. At the same time, due to the inconsistent cognition and the lack of positive communication ability, coupled with the identity of close relatives, the dialogue is easy to bring emotions, thus making it easy to miss the opportunity to promote the growth of the second generation.

Therefore, the first generation of entrepreneurs should let go of opportunities. Although the two generations have a lot of research on the visible risks, there will always be unpredictable parts, just as there are many risks and failures in the first generation of entrepreneurs. The most valuable thing in the process of giving opportunities to the second generation is to let the second generation know what it means to bear the pressure independently.

The sooner this process occurs, the better. If they have been kept in captivity for too long, the second generation will feel more depressed and unable to face the reality of high uncertainty.

This is not conducive to the second generation to face their own limitations, but also make them more unable to see through the nature of the business. In fact, not only business leaders, even if you want to become an adult, you must start exercising from the pressure of independence.

The first generation of entrepreneurs need to know that letting the second generation face and deal with the pressure is the most critical moment to promote the second generation to understand them. Only in this way can the second generation know the hardships of the rich generation in starting a business, and gradually understand the connotation of entrepreneurship, so as to establish a relatively objective understanding of the gap between themselves and the previous generation.

#04.
# How to face the complex family inheritance problem?

Many years ago, Lao Lin divorced his second wife and set up a new family with his nine-year-old son Zhuang Zhuang and Jasmine. Later, Jasmine gave birth to a son for Lao Lin. Now Jasmine is responsible for the education of the two children. Zhuang Zhuang entered the rebellious period of youth, which was more difficult to discipline than before. He was often complained by the school for various problems of study, games and making friends. This caused Lao Lin’s dissatisfaction with Jasmine, believing that she only focused on her son and neglected Zhuang Zhuang.

Lao Lin is the boss of a large listed company. His career has been smooth sailing and he has experienced two marital changes. The eldest son raised by the first wife has returned from studying abroad and has been working in the company for several years. Lao Lin is full of expectations for this eldest son and often shows his willingness to change shifts.

As for the second son Zhuang Zhuang, Lao Lin always has a sense of guilt, so I hope Jasmine can be as considerate as possible and not only favor her younger son. Although Jasmine has become the hostess of the Lin family, she is deeply disturbed by the eldest son of the old Lin who has entered the enterprise, especially when she hears that the old Lin has begun to develop a family trust plan.

Jasmine and Lao Lin are facing a common problem encountered by many wealthy Chinese families today-complex family relationships. The so-called complex family refers to the family in which the dynamic imbalance of family relationship is caused by the difference of blood relationship between children and the different intimacy among family members, which leads to the obvious or potential conflict and even crisis.

The problem of inheritance in complex families is often understood simply as a contradiction in the distribution of wealth. From the perspective of the dynamics of family relations, in fact, the essence is that the diversification of family members’ relations leads to the complexity of inheritance relations, and the emotional and psychological distance brought about by blood differences leads to the struggle for interests. as a result, different interest groups within the family have been formed.

As a generation of wealth creation, they usually think that the children born to them and different marriage partners are the same offspring, and they think they can control the overall situation. Therefore, they are not sensitive to or pay no attention to the actual blood relationship differences between different children, thus ignoring the positive construction and moderate balance of the internal relationship power of the family, and unconsciously they will fall into the relationship dilemma of complex families.

My first suggestion to Lao Lin is that before planning wealth in different ways, such as family trusts, a unified and clear system of family values should be established to reduce the tension in the relationship within the family due to the wealth distribution scheme.

The family value system should be drafted by the first generation of entrepreneurs, and actively communicate, negotiate and promote consensus within the family.

Once the family values are formed, there must be clear regulations on the path for each family member to fulfill the family values. At the same time, through the implementation of a generation of entrepreneurs, the family values are truly implemented in the hearts of family members, and then the behavior of family members is produced. Imperceptible binding force.

A unified family value system can play a synergistic role on the general principle level in complex families, and at the same time provide consistent family philosophy and growth goals for children of different blood relationships.

Secondly, education within complex families is also extremely important, and the core of education is not only the second generation of children that the first generation of entrepreneurs usually focus on, but also the mothers of the children. Because they spend the longest time with their children, the mother’s personality and cultivation will even have more influence on the growth of their children than schools, family businesses, including fathers as a generation of entrepreneurs.

Because of the differences in blood relationships between the second generation of complex families, the second generation faces more complex or challenging peer relationships, and their mothers usually affect the children’s cognition and perception of siblings of the same generation.

A complex family is equivalent to a complex organization. Because the emotional tension within the family is greater than that of an ordinary corporate organization, effective internal communication is particularly important. It is necessary to make good use of third-party forces to build a rational and emotional two-way communication hub within the family. effect. The third party provides professional perspective through focused and orderly service, so that complex families can reduce cognitive blind spots, get rational inspiration, and promote family members to eliminate misunderstandings, reduce differences and confirm consensus.

Finally, the wealth-creating generation urgently needs to update an important concept, that is, the relationship between themselves and their children is not a simple relationship of giving and receiving, and the second generation can only obey the arrangement. Instead, we should pay attention to the cultivation of children’s mind, teach students in accordance with their aptitude, make the best use of the situation, respect children’s personal strengths and development wishes, and cannot take entering the family business service as the only criterion for contributing to the family.

From the inheritance cases we have observed, no matter whether they work in a family business or not, only when children feel that they have realized their self-worth can they achieve achievement and happiness, which is one of the guarantees for the success of family inheritance, and for complex families, its importance is more obvious.