10 minute read 24 Jun 2024
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Sustainability and family businesses: the voice of the NextGen

Eric Van Hoof
By Eric Van Hoof

EY Belgium Assurance Partner

Serving national, international and multinational corporations. Supporting family businesses, their owners and their managers, wherever they operate in the world.

10 minute read 24 Jun 2024
Related topics Family enterprise Entrepreneurship Sustainability
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EY survey polled the motivations and concerns of the NextGen.

In brief

  • The NowGen should structurally organize discussions on ESG and digital topics with the NextGen.
  • Coaching, training, and networking are important for the NextGen. Appointing an external trustee as a coach is a win-win situation.
  • More political action is needed to help NextGen implement ESG.

In March, EY celebrated the 10th anniversary of the Family Business Award of Excellence. This award rewards family businesses that excel in sound and sustainable governance. The theme of 2024 was to focus on the Nextgen. This year, the East Flanders-based VPK Group received the award. And with good reason, because the family business is also considered a strong example of how the new generation can be successfully introduced into the family business.

The choice of the NextGen theme was a conscious decision. Through our contact with family businesses in the past few years, we learned that the NextGen is a driver for change and new focal points within family businesses. Especially regarding ESG, but also in terms of the accelerating digitalization. The award ceremony was an ideal moment to have a discussion with both generations. And this in the presence of finalists who are already very far along in their ESG journey.

However, the finalists of the Family Business Award of Excellence are not representative of all family businesses in our country. Their ways of working count as best-practices. Hence, EY sent out a survey to the NextGen so they can state their observations candidly. We inquired about their motivations and concerns. How do they feel about the corporate approach taken by the leading generations with regards to ESG? And most importantly, where and how do they want to make changes? We provide some insights from the survey, analyzed in collaboration with Dr. Raphaelle Mattart, academic expert on family entrepreneurship in corporations.
 

1. The NextGen wants to be heard more

One of the key takeaways from the EY NextGen Survey is that, within the context of family businesses and particularly with regard to ESG issues, the new generation (the NextGen) is asking to be more involved in strategic decisions. Intergenerational cooperation on these issues can be a tremendous strength for a family business, and yet many NextGen members feel that their voices are not heard and valued enough, if at all. And this runs counter to the NextGen's sense that they are more involved with ESG issues, that they can bring new perspectives, and also that they have more ambition when it comes to ESG matters. So, some argue for a quicker transfer of power, at least on these issues, to bring in a new perspective, combined of course with the experience of the NowGen. Others suggest creating committees to debate and decide on key actions on pressing ESG issues. 

It is important to make ESG issues negotiable and involve the NextGen. Doing nothing is not an option.
Eric Van Hoof
EY Belgium Assurance Partner and Family Business Leader


In any case, the current generations who must pass the torch would do well to respond appropriately. What are the best practices here?

  • Set up bodies to listen to the NextGen

    There are several ways you can engage the NextGen. To begin with, you can involve them immediately in the company as full board members. But depending on their degree of experience, the nature of the company and the presence of externals, this is not always easy. A second possibility is to start the entry into the family circle in family-related bodies where ESG issues can safely be discussed. In the case of larger families, this can be done at family councils or meetings or even at general meetings. In the case of smaller families, this often happens around the dinner table.

    We have noticed that there is some frustration here among the NextGen. They say that these bodies either do not exist or are very informal. Or the NextGen is excluded from them because they do not belong to the right family branch, for example. Among this year's Family Business Award finalists, however, those bodies were set up. They each apply a unique listening exercise for their NextGen members. And we emphasize “unique”, because there is no one-size-fits-all when it comes to succession. But no matter how you design that listening exercise, it is important to make ESG issues negotiable and involve the NextGen. Doing nothing is not an option.

  • Take pitfalls into account

    That the NextGen wants to be heard more, should be obvious to the NowGen. But it goes hand in hand with a potential pitfall for the leading generations. Because while listening is one thing, you also have to act on it. In other words, when you set up a listening exercise for the NextGen, you also have to fulfill their expectations. And that is often a pain point for the NowGen, because they perceive this kind of listening exercise as opening up Pandora's box. The NextGen, in turn, perceive this absence of concrete action as a lack of ambition in the family or in the company, as well as a lack of transparency.

    The latter should come as no surprise, given that millennials were born into a world of social media in which it is not unthinkable to communicate everything more outwardly in the form of positive communication for the good of the family business.

    Finally, you also have a speed factor. Millennials grew up in a time of various digital revolutions which are only accelerating today. Hence, speed is a given for them. The NowGen may feel that the NextGen wants to move too fast, underestimating the impact that changing course might have on family business stakeholders. That fear is in some ways justified. For while NextGen has an affinity for the ESG story, they sometimes underestimate the risks involved. Suddenly taking the company in a different direction can do as much good as bad, both in the value chain and with stakeholders. Therefore, while the NowGen does well to listen to the NextGen and to act accordingly, trusting blindly in what they have to say is a pitfall to avoid as well. Engaging the NextGen with stakeholders to get them to understand the potential impact of their ambitions is a useful decision here. And the NowGen's experience should serve as a compass for the NextGen in this matter.

  • Prepare the handover to the NextGen structurally

    But how can you prepare the handover to the NextGen and make ESG more discussable without falling into the previously mentioned pitfalls? In a best-case scenario, you have a family governance separate from the company governance to gradually involve the NextGen via the family bodies discussed earlier. We see in successful cases that the NextGen is involved in the company from an early age in one way or another.

    Parents talk to the children about customers, suppliers, and other stakeholders or organize company visits, for example. At an older age, they get the chance to discuss ESG issues and possibly diversification during family meetings or family councils, even before it goes to the corporate side. They then discuss, for example, a product or activity that is ESG sensitive and how they can modify or even discontinue it over time.

    The better examples I have seen engage the NextGen as observers in a family or corporate body after an initial professional experience outside the family business. This allows them to attend discussions without voting rights and, when invited to by the chairman or even on their own initiative, to share their views. Finally, you can also discuss ESG topics with stakeholders (customers, suppliers, staff, regulators, etc.). This is certainly useful for companies subject to CSRD reporting requirements and smaller companies that will increasingly be confronted with this indirectly from within the value chain of larger companies.

  • Strive for alignment on ESG before handover

    The survey shows that the NextGen feels they have to wait too long for the transfer of power. They believe their generation pays more attention to social challenges that need to be addressed quickly. In the first place, this is about ESG. The whole discussion around this is an additional incentive for them to speed up the transfer. There is a general perception that there is a big difference in vision and sometimes even knowledge around those two themes between the NextGen and the NowGen. The baby boomers do not want to invest in it before they pass the torch. Or at least, they feel less called to do so. That makes it hard for the NextGen to convince them. It is important that the generations are aligned on these topics before the actual handover begins. After all, it is a shared responsibility. ESG is here to stay, and family businesses that adapt to it the fastest have a competitive advantage.

Family Business Award of Excellence finalists exemplify leadership and success

Finalists and winners of the Family Business Award of Excellence can serve as role models. The strategic plan of 2024 winner VPK Group, for example, exemplarily applies the best practices discussed above. Their sequence proceeds as follows. The NextGen family members study first, then gain about five years of relevant experience in another company, to then potentially step into the company if there is an open leadership position for which they have the competencies. In official bodies such as the Board of Directors, they initially join as observers. VPK also has a subcommittee in their family council for a number of topics. People with more affinity for a particular topic are involved in this subcommittee. For example, they have a subcommittee for ESG. This makes it easier to discuss these topics and get the NextGen involved in topics they have more affinity for.
 

2. The NextGen wants more training, coaching, and networking opportunities

Another finding from the survey is that the new generation places great importance on training initiatives. There is a need for interaction with peers, coaches, and training. Again, this should not surprise the NowGen. The new generation has grown up in a training culture; they have studied longer than previous generations and are used to networking. They also find coaching very normal. In Generation X, coaching still has this sense of "you have a problem".

In peer-to-peer networking, the peers are often other young people in other family businesses or young people who want to launch a start-up. In coaching, the coaches are often family members of another generation or externals. For example, an external member of the board of directors or an advisor to the family business can act as a coach. In situations where the pater familias or mater familias must act as coach, rational communication mixes with emotional communication. You can avoid that with an outside confidant. And if that confidant has a stake in the business, then you have a mentor who also has every interest in helping with the succession. In short, organizing coaching structurally is a real win-win.

In situations where the pater familias or mater familias must act as coach, rational communication mixes with emotional communication. You can avoid that with an outside confidant.
Eric Van Hoof
EY Belgium Assurance Partner and Family Business Leader

Because we have seen this need with the NextGen for peer-to-peer networking, coaching, and training at EY, we have set up a network for them where they can connect with peers from abroad. With our EY NextGen Academy, we organize training for NextGen members from all over the world. We also created the Tomorrow's Legacy network, a program full of speaker events and company visits for NextGens. We already felt a lot of enthusiasm from them during such initiatives. And this is again reflected in the results of this survey.
 

3. The NextGen is asking for more political action

A third and final notable finding from the survey relates to politics. The NextGen sees a lack of government incentives or concrete initiatives to help family businesses with ESG issues. The NextGen is very willing to work on ESG but looks to the government to provide incentives to facilitate implementation. Especially since there are inhibiting factors such as financial and administrative burdens, as well as international competition with companies that are not bound by ESG rules. These factors are an additional barrier to the NextGen trying to convince the NowGen to make substantial changes.

Politicians must be aware that, as we speak, in many companies the baby boomers are paving the way for the new generation. Our government has everything to gain if those successions go well. Because when they go well, it helps companies to live up to the green deal, among other things. My appeal to politicians is therefore to pull out all the stops to make those transitions go as smoothly as possible. This can range from subsidizing coaching and training to tax reductions.

By way of conclusion, I advise the NowGen not to fall into classic succession habits and to be open to the NextGen's input. And above all, the NextGen must make themselves heard even more. They must dare to stand up for their beliefs and put things on the table. Because ultimately they will have to make it happen.

For more results and insights from the EY NextGen Survey, reach out to Eric Van Hoof.

 

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Summary

Family businesses across Belgium are experiencing an era of intergenerational collaboration where three and sometimes even four generations need to work together. Each generation has different views, ways of working, and ways of communicating that can make collaboration and handover difficult. With the EY NextGen Survey, we identified the drivers, desires, and concerns of the new generation. From the results, both NextGen and NowGen can learn lessons for managing the succession and future of their businesses.

About this article

Eric Van Hoof
By Eric Van Hoof

EY Belgium Assurance Partner

Serving national, international and multinational corporations. Supporting family businesses, their owners and their managers, wherever they operate in the world.

Related topics Family enterprise Entrepreneurship Sustainability
Upvote