Could a rise in adult adoptions boost the UK economy?

Sarah Coles
Family business
Family business

In Japan, only a small fraction of adoptions are of children, because the vast majority are fully grown men. It sounds like a bizarre idea, but it's actually a clever solution to a problem we suffer from in the UK too. In the UK, we have struggled to come up with our own solution, so perhaps its time to consider adult adoptions.

The problem in question relates to family businesses. Being good at business isn't necessarily something we pass on to our children - neither is an inbuilt enthusiasm for the work. It means that many family businesses are passed to an inappropriate member of the family and struggle after the death of the founder.

A government study found that only about one third of family businesses successfully make the transition from first generation to second generation, and only a third of them subsequently make it to third generation.

In Japan, the solution is simple: they find the best managers, and adopt them into the family. This is something that has taken place among family firms that are household names, including Toyota, Suzuki and Canon.

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Would it work here?

Duncan James, partner and family business specialist at Shakespeare Martineau, says: "It's an ingenious idea but it is unlikely to work as well in the West for cultural reasons."

Instead, he says in the UK, to avoid the pitfalls of poor succession, families need a proper plan in place. This, he said, may mean the business owner taking a step back, and mentoring the next generation in the role. This is often easier said than done - as founders may struggle to let go, and may find it hard to differentiate business mentoring from broader parenting.

James says: "It is always advisable to plan at least three or five years ahead so there is sufficient time to make the right appointments and support family members in stepping up to the next level." And he stresses: "It is most important that exiting business owners keep an open mind and try to be as realistic as possible about the capabilities of the next generation. It may be tempting to think that a particular family member is ready for a leadership challenge when in fact they have only been in the job six months. It is far better to take a planned approach to succession; phasing the transition to allow time for the relevant people to grow into their new roles."

Alternatively, the right succession plan may mean hiring in expertise from outside the family in order to fill any underlying skills gaps within the management team. This needs careful handling. James highlights issues such as share ownership - where a new member of the management team may need share-based incentives. There are also family issues, especially where a member of the family has been deemed unsuitable and outside expertise recruited instead.

When you consider all the complexity of succession in a family business - and the failure rate of the firms themselves - there's an argument that we need a better solution. And if adult adoption can't cure the problem in the UK, what can?