With family enterprises forming the backbone of the region’s economy, the generational transition takes on particular importance in Latin America, where business owners must also grapple with economic volatility, political instability – and a generation of heirs more ready to take risks than their parents.
Generational transition is particularly important for family-owned businesses in Latin American, where they are the cornerstone of the economy, contributing 60% of the region’s GDP. The present and very real risk of economic volatility and political instability in the region makes it all-the-more essential for families to execute successfully what they can control and to navigate these transitions smoothly, particularly as family businesses seek to grow via M&A and as younger generations are more willing to take risk. The ongoing "Great Wealth Transfer," where Baby Boomers are passing down unprecedented wealth to their successors, is not merely a financial transaction. It is a cultural rite of passage, involving the transfer of aspirations, visions, and the values that have sustained these businesses over generations. This process is fraught with challenges as different generations often have conflicting viewpoints and priorities, shaped by their unique historical and social contexts.
The next generation of family business leaders in Latin America and Mexico is increasingly embracing change and innovation, as made evident in the evolving strategies of family offices where the rising generation is increasingly setting the agenda. There is a growing focus on Environmental, Social, and Governance (ESG) criteria and startup investments, reflecting a shift in values and priorities that align with contemporary global trends. This shift not only preserves the cultural relevance of the family business but also positions it to thrive in a rapidly changing world.
"Profit is no longer the sole objective; investors have been challenged to count the environmental, societal, and financial costs of their actions, and question their role within wider society. This is driven by regulation, the UN’s Sustainable Development Goals, and ever clearer data showing that long-term profit stems from a functioning and sustainable ecosystem"
— Jason Hobday, Senior Family Governance Advisor, The Pictet Group
| GENERATIONAL DYNAMICS
Indeed, the rising generation understands that to ensure the longevity of the family business, they must adapt and engage with their environment. This often involves remodeling, or stepping away from the legacy business to build new ventures, reflecting a dynamic interplay between tradition and modernity. For instance, many Latin American family business owners are actively seeking mergers and acquisitions as a strategy for growth. According to a report, 56% of surveyed executives view M&A opportunities in Latin America as excellent or very good, and 43% are likely to pursue such opportunities within the next 12 months. This interest is partly driven by generational dynamics, where senior leaders are nearing retirement and their children may not be interested in succession, as well as opportunities linked to foreign direct investment exits.
The rising generation is not afraid to take risks. According to PwC’s 2023 Family Barometer report, more than half of the rising generation of wealthy families acknowledge they have a greater risk appetite than their parents. This shift is partly due to a more global education and changing approaches to succession. The new generation of family business leaders is using their experience to invest and build ventures outside the legacy business. This approach not only diversifies their portfolio but also allows them to have a greater impact on a changing world, which testifies to the growing trends of diversification and resilience. By engaging in entrepreneurial activities and impact investing, the rising generation can identify where the family business can have the greatest impact.
| BALANCING INNOVATION AND FAMILY BUSINESS LEGACY
Cultivating entrepreneurship in a family environment is crucial for the longevity and vitality of family businesses. Entrepreneurs often talk about the influence of parents or other significant figures in developing their ‘can do’ mindset. Cultural transmission within families occurs through observing the behavior of close family members, hearing relatives’ life stories, and picking up the habitual sayings and mannerisms of the family unit. Positive influences can empower young people to develop strong entrepreneurial skills, knowledge, and attitudes. These role models might not always be a parent or even a relative, but the opportunity to watch the activities, approaches, and mindset of a trusted adult offers invaluable insight into the emotional journey that comes with entrepreneurship. Understanding how work is integrated into their lives, how they deal with challenges, and where they find the energy to pursue their passion can significantly influence the entrepreneurial intentions of younger family members. Storytelling, effective communication styles, and practical learning opportunities within the family ecosystem further foster an entrepreneurial spirit, ensuring that the legacy of innovation and resilience continues across generations.
"What I see as a difference is that the new generations are more aware that the way they invest reflects the worldview to which they subscribe. Investing is becoming more of a philosophical question"
— Honora Ducatillon, Head of Family Advisory, The Pictet Group
"To be successful inheritors of wealth, children need education in finance and money management, as well as freedom to evolve their identity and self-perception"
— Pauline Lemaire, Family Governance Advisor, The Pictet Group
Navigating generational transition in family businesses well means finding a balance between preserving family values, embracing change, and encouraging open communication. By implementing robust family governance and encouraging adaptability, family businesses can not only preserve their legacy but also innovate and remain competitive in a global market. This approach ensures that family businesses are not only resilient but also poised for long-term success. The unique socio-economic landscape of Latin America, characterized by its diversity and historical complexities, adds another layer of nuance to this transition. In countries like Brazil, Mexico, and Argentina, where economic volatility and political instability can pose additional challenges, the ability of family businesses to adapt and innovate becomes even more critical. The younger generation's inclination towards digital transformation, sustainable practices, and social responsibility is not just a trend but a necessary evolution to navigate these uncertainties. By leveraging technology and fostering inclusive growth, these leaders are not only safeguarding their family legacies but also contributing to the broader socio-economic development of the region. This dual focus on preserving tradition while driving modernity ensures that Latin American family businesses remain pillars of stability and engines of growth in their communities. The rising generation, with their global perspective and commitment to impact, is well-equipped to lead these businesses into a new era of growth and sustainability.
Jason Hobday
Senior family governance advisor, Pictet Wealth Management.
pictet.com
Honora Ducatillon
Head of Family Advisory, Pictet Wealth Management.
pictet.com
Pauline Lemaire
Family Governance Advisor, Pictet Wealth Management.
pictet.com
