Everyone is talking these days about how the millennial generation will impact the workforce in the years to come. According to Nielsen, the 77 million millennials in the United States today, ranging from age 18 to age 36, comprise 24 percent of the population (on par with the baby boomers) and are the most educated generation in history. Several studies of millennials discovered consistent career goals regardless of industry or profession: a flexible work culture, leveraged use of technology, transparency and participation in decisionmaking and socially responsible business practices.
Furthermore, as the baby boomer generation begins to retire, the dynamics within family owned businesses will dramatically change. The next generation entering the work force often doesn’t have in-depth knowledge and expertise about the family business, or business practices in general, which typically leads to a transition period between retirement of the baby boomer and the millennial generation taking over the day-to-day running of the business. Discuss the following key items with your clients to bridge the gap between experienced family members and the next generation, so that the family legacy and business are protected.
Just as with all other employees within a business, family members should have defined roles and responsibilities and be held accountable for their actions. Additionally, family members shouldn’t necessarily be involved in all aspects of the business; their responsibilities should be limited to the department that they’re working in and their role within that department. If a family member is working in the marketing department, for example, he shouldn’t be involved with decisions being made in the accounting or information technology departments. Limiting his role can be especially challenging when a family member is also an owner of the company and feels that he has the right to be involved in all aspects of the company, despite having no knowledge of what’s occurring in other departments. Boundaries should be established and everyone’s roles should be clearly defined so that each person knows exactly what his responsibilities are and how he’ll be held accountable. This could include referring to employee manuals or job descriptions used for that particular role relative to how an unrelated employee would perform his duties. Expectations and guidelines should be outlined in advance and discussed with the family member, as your client would do with a new employee.
When someone from the millennial generation graduates from college, he often assumes that he’ll join the family business and immediately step into a management position, because his family owns the company. The older generation should consider requiring the younger generation to gain work experience at other companies within the industry prior to joining the family business. This will help them build the necessary knowledge and experience to perform in a senior position. Not only does this motivate the younger generation to work harder to prove that they’re deserving of a position within the company, but also, it prevents conflict within the company from employees who believe that the family member doesn’t deserve the position that he’s in. Once a family member has met the requirements that are set out for him by the older generation, the position that he’s given should be in a department applicable to his experience. For example, someone who doesn’t have an accounting degree shouldn’t be given the position of controller. Additionally, the family member should be paid the going market rate for the position he has – his pay rate shouldn’t be higher due to the family factor.
In many family businesses, it’s common for only family members to sit on the board of directors. As the younger generation becomes more involved with the business, their viewpoints on what direction the company should take can differ greatly from those of the older generation, which can cause friction. Advise your client’s family members to consider creating an advisory board that’s comprised of third parties who are familiar with the business (for example, attorneys and bankers) and who can provide expertise and an outside opinion - not only on contentious areas between the generations, but also on potential directions for the company that otherwise might not have been considered.
In addition to having a third party advisory board, family businesses should consider documenting how a dispute among family members will be resolved - whether through a vote or mediation.
For information on how to create a smooth transition of the family business, see “Succession Planning for Family Businesses.”
Jennifer Biundo is CPA at WeiserMazars LLP.