Family focus: The non-technical or family component of succession

As a business advisor I often see that too much attention is being paid to the technical aspects of the succession plan, such as the estate freeze, business valuation, tax minimization, trusts and wills. And too little attention is being paid to the non-technical component such as family communication, family values, family dynamics and family expectations.

Family business succession plans are complex, and require a unique skillset and knowledge base. The right advisor can help you navigate challenges and answer questions, such as: 

• Is working and owning the business a birthright or an opportunity that needs to be earned by family members?
• Who can work in the business and are there any educational or other requirements (i.e., outside work experience)?
• Who can own shares of the business, when are the shares transferred and how is the transfer funded?
• Should the shares be split equally amongst the children even if they don’t all work in the business?
• What happens in case of death, incapacity or voluntary exit of a shareholder?

Family business rules

When the questions listed above remain unanswered, each family member will have a different expectation as to how each of these questions will be answered and this can often lead to conflict amongst them.

However, imagine if all of those questions were answered and clearly addressed in a Family Business Constitution (your guiding principles, family business rules, code of conduct, etc.), which would be developed primarily by the owners and the family members who are active in the business.

These rules would be communicated to the entire family, including spouses and children at least once a year; painting a clear picture for all family members and facilitating the transfer of the business to the next generation.

Anecdote: The dispute resolution process

I had a client who was nearing his late eighties and was ready to retire. He had three adult sons who were more than competent to run the business and whom had been working in the business for over 15 years. However, he did not feel ready to formally transfer management responsibility or ownership to them. When I first met him, it became clear that his issue was not related to the technical component (estate freeze, tax, valuations, trusts, shareholders agreement) of the succession plan, but rather with the non-technical component (the family component).

He was worried about transferring his business to his three sons because they did not get along. He knew if they couldn’t get along and make decisions together, they could easily destroy the business he spent his life building.

After meeting with all family members, and recommending a number of succession guiding principles supported by the family business rules to help guide his decision-making, the owner finally felt comfortable transferring the business.

One of the most important family business rules for this family was agreeing to a dispute resolution process that would allow family members to effectively address and resolve conflict. Today, the three sons run a successful family business, and even have some of the next generation working alongside them.

The process

It is never too early to start your family business succession plan. If you currently own a business and know that some of your children, nieces, or nephews are interested in a career in your business and you are hoping to keep it in the family, then you are ready to start. The sooner you start, the less conflict there will be and the easier the discussions and decisions surrounding succession, family and the business will become.