The family business is a vital force in today’s economy. It ranges in size from the traditional, small, corner business to dynamic organizations employing a large number of people.
Most economies depend heavily on the continuity and success of family businesses. It is unfortunate, even alarming, that such vital forces have a poor survival rate. Less than one third of family businesses survive the transition from first to second generation ownership. Of those that do, about half do
not survive the transition from second to third generation ownership.
When founders look to the future to decide what to do with their businesses, they are faced with few options. They can either:
Close the doors.
Sell to an outsider or employee.
Retain ownership but hire outside management.
Retain family ownership and management control.
To be one of the few family businesses to survive transfer of
ownership requires a good understanding of your business and your
family.
There are three main issues which can help a founder ponder on when considering the future of a family business: Leadership or ownership succession difficulties Conflicts between generations Underpowered siblings and cousins syndicates
Planning for Succession
Business owners have a passion for what they do. They are builders who take satisfaction in making the company grow. They focus on the future. These traits explain success but they can also be a problem when the time for succession comes.
Sometimes, succession is a code name for retirement or an insignificant role on the sidelines. If that is the case, most owners will scuttle the plan although the transfer of ownership and leadership may not be optional. “Every succession plan should define a role for the senior generation incorporating the owner’s personal goals”
Succession is imperative; the question is how and when, not if. How can succession happen if the incumbent generation is determined to be the architect of the company’s future forever?
The answer may lie, in part, in the following:
1.
The person proposing transition should plan a role for the owner after succession. One must be creative and careful. There are many tasks and responsibilities with the potential to be challenging, but the role had better not be inconsequential or dull.
2.
Be sensitive to the right timing for the proposed transition. Too soon or too late are equally bad.
3.
Strive to achieve the owner’s primary goal, such as perpetuating business and family harmony.
4.
In a caring way, be sure the owner is aware and understands the goals of the family and its individual members. Too often, the owner and the next generation are surprised to learn the others’ feelings. It is important to look succession from the family’s perspective as well.
The proposer may start with the premise that every succession plan should define a role for the senior generation that incorporates the owner’s personal goals. Take advantage of the fact that senior generations know they cannot stay on forever; they just don’t want to be benched. Give them a path to follow that takes them where they want to go.
Often, the path will lead to financial security, to plans that assure fairness within the family and to decisions on the timing of transition and on
who will be the next leader.
Owners, of course, know they are getting older and that change comes with age. When the owner is 60, for example, he or she is generally not willing to pay the physical or emotional price that was acceptable thirty years earlier.
A final consideration in developing succession plans is to evaluate whether the plan responds to specific family goals considered very important to the owner. The challenge is to identify those goals, communicate them constructively and build consensus.
Family Business Succession Readiness
Instructions: Tick each item existing in your family business. Then click the SEE RESULT button.
Family Troubles
Emotional Cut-offs (Family members who do not talk to each others)
Excluding type alliances (typically a destructive triangle in which two persons exclude a third person).
Rage-like feelings towards other family members
Threats of lawsuit between family members
Family conflict which affects board, management meetings or the workplace.
Ownership Problems
Lack of advisory board or Board of Directors with true outsiders
Lack of valid buy-sell agreement
Lack of unified agreement
Refusal to allow outside advisory (attorney, bankers etc) to intervene or enter system
No liquidity for shareholders
Management Difficulties
Non-standard compensation schedules
Underperformance of a family member
Threats by well-trained second or third generation family members to leave business
Decision-making based on emotions and relationships rather than business logic
Succession Obstacles
Unclear or unrealistic succession plans
Lack of specific date for succession
Lack of named successor
Lack of training program for successor(s) and management
Isolated CEO
Lack of interest by CEO in matters outside the business
Clues that it may be too late for help
Two sides of the family have fired litigators
Family member has filed a law suit against another family member
Persistent pattern of rapidly decreasing revenues with no priority product or service
Differences in the complex relationships between, and among, family members and non-family employees.
Here are some suggestions we have come across for maintaining familial bliss as well as sound business sense. Some of these guidelines also apply to doing business with friends, an equally tricky topic.
It is as important to be as courteous to your family as it is to non-family members. We sometimes become too relaxed with family members just because we see them every day. We take them for granted and believe that they will put up with our moods in ways other people would never understand. This can lead to problems with family members, or with other employees, who feel awkward observing these interactions.
Establish boundaries. Make sure you spend enough non-working time with your family members. See them as individual people with whom you have a healthy relationship outside the company. Have separate family outings, holidays or weekend activities where you DON'T talk business.
Be professional in public or at work. Expressions of affection could make other employees feel uncomfortable. If you want to be alone together or have a private conversation, go away from the company property for an intimate lunch or cup of coffee. But don't abuse the privilege and cause the other person’s duties to be neglected.
If you are the employer, have very specific policies about reporting relationships and expectations of behaviour to avoid conflicts of interest, sexual harassment, or the potential appearance of either. Working in separate departments, for example, might be an ideal solution for a couple to work at the same facility and avoid any potential problems.
If you own a family business, be sure the lines of communication to non-family employees are good. Make sure that no one feels disadvantaged and left out of conversations and decisions that take place around the supper table. Keep the relevant people (based on their role in the company) involved in all decisions.
Don't talk about your family members’ personal life with other members of your staff, except in terms that are absolutely non-controversial. (Don't tell your co-workers that you don't approve of whom your daughter is dating, for example, if your daughter works in the next office!)
Make sure that if a member of the corporate structure decides to leave the company, operations will not be impacted more than necessary. Don't assume that a person is a "lifer" just because he or she is a family member. Whether or not they take the "exit clause," inserting one in the contract will make people feel less trapped and ensures that they are there by choice.
Respect each others' decisions and authority. This may be particularly difficult for parents. Just because you're Mom, that does not mean you can tell your son how to run his department. Keep your comments appropriate to your role in the company, rather than your role in the family.
Appreciate the good things about each other. It becomes easy to focus on the negative when you spend a lot of personal AND professional time together. Remember (and point out) what you admire and love about one another.
Underpowered siblings and cousins syndicates
Sibling and cousin partnerships face special challenges. These fall into two major categories: Equity and Values Conflicts: As a result of decisions by previous generations of family members, siblings and cousins may be inadvertent partners tied together to a single business entity. However, they may, in fact, prefer to set and course their own economic destiny. These siblings and cousins may be:
Unable to cash their equity
Unable to receive reasonable return on equity
Non-working siblings and cousins may receive no return on equity
Conflict between working and non-working siblings and or cousins
Sabotaging sibling or cousin
Under-performing siblings or cousins who are equally compensated
Limited Conflict Resolution Skills: Siblings and cousins in business together may also be limited in their ability to resolve differences and conflicting needs effectively. This often results from:
Lack of effective governance and communication forums for resolving differences
Voting by blood lines rather than business logic
Meddling in-laws
Hyper-competitive siblings or cousins
Siblings and cousins overly dependent on aging or deceased parents (or advisors) to resolve conflicts
If your business is suffering / or is facing any of the potential risks listed above, contact us now for a one-to-one confidential meeting outside your premises.
The family business is a vital force in today’s economy. It ranges in size from the traditional, small, corner business to dynamic organizations employing a large number of people.
Planning for Succession
