Lawrence Nicholson | Navigating the G2 trap

Are family-owned businesses, FOBs, the cradle for ‘nepo babies’, or is a case the stereotype that comes with being born into a family business.

The catchy two-word buzz phrase, nepo baby, is now linked to FOBs. This is a description attributed to children of celebrities, with the claim that their achievement or elevation is a result of nepotism and nothing else.

By any measure, this label is not complimentary. Unfortunately, children born into (successful) FOBs seem not to be able to avoid this label.

It is not uncommon to hear statements such as: He was born with a ‘gold spoon’ in his mouth and knows nothing about hard work; Everything was handed to him because he is a son; all he does is profile and spends his father’s money; His ‘ole man’ must be turning in his grave to see that his hard work is going down the drain; and when you see her, you know that nepotism is alive and well, she knows little about business and is running this million-dollar enterprise into the ground.

Many view children who inherit the family business – the second generation or G2 – as unqualified and their place of prominence in the business community or their appearances on ‘Page 2’ to be without merit.

Added to the challenge of keeping FOBs economically buoyant, many from the G2 cohort have been facing a spate of ‘tongue-lashing’ and labelled as ‘nepo babies’. This is unfortunate because this is neither supported by the literature nor empirical data.

The “Shirtsleeves to shirtsleeves in three generations” adage, which describes the perceived inability of grandchildren to be good stewards of the wealth passed down to them from their grandparents and parents, has been like a millstone around the neck of FOBs for years.

With the emergence of the nepo-baby label this adage seems to have shifted to the second generation. This leaves many in the cohort of G2 having to ward off criticism and virulent tongue-lashing regarding their stewardship.

But this is clearly a misplaced attribution to FOBs in Jamaica – it’s not supported by the data. Part of this attribution is fuelled by the perception and the commonly held view that the G2 cohort should operate in the same mode as the founder’s generation, the G1. Unfortunately, the approach to succession planning by G1 has done little to remove this perception.

But is there any guideline to help in minimising this perception and cause less light shining on the nepo-baby label? Let’s explore.

The approach to succession planning by G1 is usually paternalistic with the expectation that everything should operate in the same mode as the founder, even after the business has been passed on to G2. This approach has led to limited exposure of G2 to the operational details of the business. There is also limited visibility of G2 prior to their ‘ascension to the chair’, leaving the public to believe that they were not part of the business, even in cases when they were in the middle of the operation.

This must change: get G2 to be part of the business early and allow for early exposure and high visibility.

To minimise the nepo-baby label and successfully navigate the ‘shirtsleeves to shirtsleeves’ trap, there is the need for more purposeful planning and education between the generations. Part of this education should involve early entry into the business, in which G1 and G2 can be seen by the public to work together – co-chairing meetings, meeting with clients, and G2 being allowed to be creative, even if this has to be done under the watchful eyes of G1, in the first six months.

G1 and the public should also allow for innovation and difference in approach to business by G2. For example, those from the G1 cohort would not usually show their wealth in how they live – no flashy cars, ‘profiling on page 2’, or be engaged in high-visible parties.

However, these have formed part of the strategic profile of those from the G2 cohort. A deep dive in these seemingly wasting away the family business wealth shows that these activities form part of a marketing strategy used to bring visibility to the business, resulting in new business partnership, which eventually has a positive effect on the bottom line.

In short, G2 must be allowed to be creative and innovative, and to take ownership of their space without the shadow of G1 trying to dictate how things should be done. The G2 cohort does not and should not be expected to operate in the same mode as G1.

One of the complaints of G2 is that they are constrained in how they are expected to execute their own vision of the business. While it is difficult for G1 to let go, the suggestion is to agree to the retention of mission of the business and its core values, and leave the visioning to G2.

Much of the criticism of G2 is based on perception of the public regarding the mission of the business and the mandate of the succeeding generation, this resulting in an imposition on G2 of their understanding of the founder’s mission of the business. Careful and deliberate planning between G1 and G2 can bring clarity and remove some of the negative perception of the G2 cohort.

It can be agreed that there are the underserving who have inherited the family business. There are many examples within and without Jamaica.

The truth is that there are many underserving in others of life. What the data shows is that the broad-brush label of ‘nepo-babies’ for G2 FOBs does not apply. The space is occupied with a cohort of brilliant and forward thinking members of G2.

In short, FOBs do not have a ‘nepo baby’ problem, but there is perception problem. The sustainability of FOBs in Jamaica is dependent on G2 – they would do well without the label and the negative perception. Those who care about FOBs must work to fix this.

More anon!

Lawrence Nicholson, PhD, is a senior lecturer at the UWI Mona School of Business & Management, a director of the RJRGLEANER Communications Group, and author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family-Owned Businesses. Email: lawrence.n.08@gmail.com