For a smooth generational transfer, not only succession planning but also more policies and practices can help. The single term for this is institutionalisation. Without it, family businesses can easily fall short in:
- leadership
- governance
- talent management
- decision-making
An article on the website of the INSEAD business school revealed the results of an investigation into European family businesses.
Institutionalisation journeys of family businesses
There are six main attributes of the institutionalisation of family firms:
- family ownership and succession
- intangible family assets (unique heritage, values and stakeholder networks)
- corporate governance and leadership
- growth capabilities
- organisational design
- access to capital
Older family firms may have lower scores in family ownership and succession since there are already more family members involved, resulting in more disagreements on operational issues and succession planning. On the other hand, conflict-resolution mechanisms tend to improve as the firm develops.
European family firms: institutionalising fast
In Europe the proportion of family firms already run by the fourth generation (24%) is more than double that of the other two regions.
When European family businesses are compared to those of Latin America and Asia-Pacific/the Middle East, it seems that European family firms tend to institutionalise faster: the gap in Europe between the leaders and the rest was the narrowest. During the first two generations, European family businesses may fall behind slightly but by the third generation they are already ahead. The institutionalisation journey in Europe is thus very rapid.
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