Building intergenerational trust: The key to successful family business succession

Succession is often a critical and delicate moment for any family business. The passing of leadership and wealth ownership from the incumbent to the next generation is not merely a technical handoff; it is a deeply intricate and emotionally charged affair.

This is so especially since family businesses are built on trust, loyalty and long-term goals. Without a firm foundation of intergenerational trust, succession risks unravelling family discords, which could jeopardise the very legacy families strive to preserve.

Trust can be understood as “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behaviour of another”. (Rousseau et al., 1998). In the UHNW family context, the intermingling of family and wealth indeed makes succession a complicated matter. Beyond financial gains, families have “socio-emotional” priorities like job security, social advancement for family members, family harmony, building reputation and cultivating social capital. In this environment, trust is paramount to the endurance of family business.

This article explores the key strategies for building and maintaining trust across generations for a smooth transition.

Challenge

The real challenge lies in bridging the gap between different management philosophies and adapting to evolving times. The older generation needs to trust that the younger can effectively lead and preserve the business legacy, while the younger generation must trust that the older will eventually relinquish control and allow changes and innovation to take place. Yet, each generation uses different yardsticks to measure succession readiness, shaped by distinct generational experiences, making it difficult to build the mutual trust needed for a smooth transition.

Insights

Our research on family businesses undergoing succession, rooted in social exchange theory, revealed fascinating insights. Social exchange theory (SET) posits that human relationships are formed when people engage in interactions that are mutually beneficial, with such benefits being either tangible (e.g. money) or intangible (e.g. social approval). In a family business context, SET can guide our thinking on various dynamics that can help build trust:

Reciprocity shapes trust: The incumbent generation’s willingness to share control is often reciprocated by the successor’s commitment to preserving the family legacy. This mutual exchange builds trust over time.
Perceived fairness matters: When successors and external stakeholders feel the transition process is fair, transparent and beneficial for themselves in the future, they’re more likely to trust the incumbent’s decisions. This perception of fairness is crucial for a smooth handover.
Long-term orientation: Families that view succession as a long-term exchange process, rather than a single event, tend to build stronger intergenerational trust. This approach allows for gradual trust-building through repeated positive exchanges.
Emotional currency: In family businesses, emotional outcomes (like pride in the family name) are as important as financial ones. Recognising and valuing these emotional exchanges strengthens intergenerational bonds.
Trust as investment: Incumbents who invest trust in their successors early on—by delegating important tasks or involving them in key decisions—often see higher returns in terms of the successor’s commitment and performance.

Strategies to build trust in families

Time and again, we’ve seen how families that actively work on trust-building fare better during transitions. Here are some key strategies that consistently contribute to fostering trust across generations:

Early involvement: Begin cultivating good familial relationship at home even prior to joining the organisation. Then, integrate the next generation into business operations early, laying the groundwork for mutual understanding and respect.
Mentoring programs: Formal and informal mentoring helps transfer knowledge and develop the successor. This builds competence and provides opportunities to fulfil obligations which in turn forms trust in their abilities.
Clear succession plans: Transparency about the succession process reduces uncertainty and builds trust. Succession planning is ultimately contingent on the incumbent and successor being in sync in the timing of their mutual readiness for this transition.
Shared decision-making: Involve both generations in key decisions to blend experience with fresh perspectives. Devote efforts to understand the guiding values in family firms and how these values are transmitted into the business system, paving the way for lasting enterprises.
Family governance: Implement structures like family councils to manage family-business interactions. Frequent communication isn’t enough. A family also needs to find their most effective way of communicating.

Conclusion

As the saying goes, trust isn’t built overnight. It’s a continuous process that requires open communication, mutual respect, and a shared vision for the future. By focusing on building intergenerational trust, your family is not just planning for succession – you’re securing the long-term preservation of your family wealth.

For more information and personalised advice on multi-generational wealth management, visit itriom.com. Discover how our Family Office Wealth Management Platform empowers you to build a sustainable legacy your family can be proud of.

About the author:

Matthew Millard-Beer is CEO & Founder, based in Itriom’s London Office.

About Itriom

Itriom is the global impact platform helping leading families shape a better world. Itriom’s platform enables families to refresh and redesign their values, aligns them with the right UN Sustainable Development Goals, combining them in an agreed purpose and a Family Impact Charter. Itriom’s platform supports the development of impact initiatives and whilst providing discrete and secure spaces for peer-to-peer messaging and collaboration. Itriom’s core practices in leadership, geostrategy, and sustainability benefit clients by developing strategies to engage and support the next generation in building a lasting legacy of which families can be proud.

About Itriom's Leadership Practice

Itriom’s leadership and resilience practice instils all-encompassing leadership in support of principals of leading families and the next generation preparing for family succession, transition and evolution.

itriom.com

© 2024 Itriom Limited. All rights reserved. Republication or redistribution of Itriom’s content, including by framing or similar means, is prohibited without the prior written consent of Itriom Limited. This material is provided for informational purposes only.

An Unparalleled Network of Influence and Impact

An Unparalleled Network of Influence and Impact

An Unparalleled Network of Influence and Impact

Building intergenerational trust: The key to successful family business succession

Succession is often a critical and delicate moment for any family business. The passing of leadership and wealth ownership from the incumbent to the next generation is not merely a technical handoff; it is a deeply intricate and emotionally charged affair.

To download Dr. Herb Castillo on managing sustainability-related risks insights, please submit your details.

Challenge

Insights

Strategies to build trust in families

Conclusion

About the author:

About Itriom

About Itriom's Leadership Practice

itriom.com

Awards and Accreditations

Award winning Platform

Alizah Beg

Georgina Murrin

Tim Boughton

Dr. Herb Castillo

Simon Hulland-Lucas

Matthew Millard-Beer