Two thirds of wealthy entrepreneurs doubt their children's ability to take over the family business.
A survey of 400 global very high net worth business-owner families (those with over £5m in assets) conducted by Barclays Private Bank has exposed the challenges faced by business owners on the verge of handing the reins to their offspring.
As the pandemic shifts the business strategy of many families, the younger generation are increasingly doubting their ability to take over, a sentiment shared by their parents. Four in 10 family offices are significantly reassessing their financial strategy as a result of COVID-19, showed the survey, and only 45 percent of millennials currently feel prepared to run the family business.
“There are a lot of families that want to start transition to the next generation, but they don’t feel that that generation is ready to take full responsibility. The sort of autocracy within families say, ‘I’ve grown most of this wealth. Can you be trusted to take control?’” said a Barclays Private Banker quoted in the report.
Most originators (67%) are highly cautious about relinquishing authority – and, with a natural tendency to stick to the methods that made them successful, originators often maintain a position of authority well into old age.
The COVID-19 pandemic has brought succession to the top of the agenda as well as creating pressure to adapt ongoing business practices, with 70 per cent of originators saying that the pandemic has affected their business aims, and around two in five (38 per cent) confirming that they are significantly reassessing their financial strategies. As a result, long-established wealth transfer plans will likely need to be reconsidered to an extent.
Much of the effect of COVID-19 on family businesses has been left to be dealt with by those currently managing the ongoing day-to-day activity, who often come from the second generation. Amongst this group, one in four (27 percent) say that their aims have changed to primarily manage the negative effect of COVID-19 on their businesses.
“The transfer of wealth between generations is an emotive subject for families anyway, accelerated by the pressures of COVID-19," said Effie Datson, Global Head of Family Offices, Barclays Private Bank. "It is important for families to have open, honest dialogue about their priorities and concerns, and build trust between the generations."
She adds: “One way we see families successfully transition wealth is by clarifying their values, their investment and management principles, and building a shared vision of the future, so the family commits itself to an identity."
The survey, conducted in Q2 2020, comprised a total of 402 interviews across three generations of very high net worth wealthy family members including under 40s (151), 41 – 60 year olds (158) and over 60s (93). 290 were male and 112 female. Participants are primarily living in France, Germany, Hong Kong, India, Italy, Qatar, Saudi Arabia, Switzerland, Singapore, the UAE and the UK.
Family business owners totalled 290 within the sample. And across the whole sample 78 identified themselves as wealth originators, 121 as non-originators but main decision makers (managers) and 203 as non-originators and not main decision makers. In addition 20 interviews with ultra high net worth clients (those with assets of £30m) were added to the survey.