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Feb. 2, 2007
Be successful in succession
Handing over the reins of a family business takes preparation.
NOEL Z. GOLDEN
In Canada and around the world, family businesses make up a significant
proportion of the enterprises contributing to the economic fabric
of those countries. Companies owned and managed by families are
everywhere we look, from the small corner grocery to some of the
largest global business empires. But these types of businesses face
a unique set of challenges which, if not addressed, can (and often
do) lead to the downfall of a lifetime of work.
How can the family business owner ensure prosperity, competent management,
successful succession and, at the same time, maintain family harmony?
The answer can be found in part through communicating and building
consensus among all of the key stakeholders of the business. Remember,
the family business affects not only those family members who are
actively involved but also those that are non-participating owners
or potential future owners or participants.
In opening these lines of dialogue, it is essential for the founder
to do some preliminary soul searching before a meaningful family
discussion can begin. There are some general guidelines to improve
the chances of successfully transitioning your family business to
the next generation.
Key stakeholders need to conduct a succession readiness check-up.
This is the first step in being able to develop your family business
succession action plan, and you have to start by asking yourself
some tough questions. Some of the important things to consider in
making this assessment are determining when you want to retire (and
whether you would be financially secure if you did so), how much
the business is worth, whether you have a potential successor, whether
you have developed an equalization strategy for children active
in the business and those who are not, and whether you have a shareholders'
agreement.
In planning for succession, it is essential to be aware of the objectives
of all key stakeholders in the business. Each person should consider
short- and long-term objectives, professional and personal goals
and management and ownership interests. The plan will not succeed
if it is developed in a vacuum.
The success of this planning is dependent upon the members of the
family business being able to communicate, discuss and collaborate
on their issues and objectives. Appoint a professional advisor or
outsider to customize, facilitate and moderate the communication
process.
With the individual assessments complete and a communication process
in place, the next step is to address critical business issues.
Identify and prioritize key issues facing the family business. Ask
the question, "How important is discussing and resolving this
issue to the survival of our business?"
Part of the strategic planning for any business (whether or not
succession is on the horizon) is to have vision and mission statements.
Mark the common family goals for the business by developing agreed
vision and mission statements. These statements will form the guiding
principles for the other succession planning work to be done.
Ownership and management considerations do not necessarily go hand
in hand. Develop a plan outlining how to transfer ownership and
management responsibilities – separate them if necessary. The
options may include, among others, sale to a third party, family
succession or management buy-out.
If a family successor has been selected, develop a plan to groom
that person for the position. Effectively training and cultivating
a successor does not happen without work. Have timelines within
which set milestones must be met.
The best-laid succession plans can unravel in the event of the sudden
death or disability of an owner or key employee. A contingency plan
is vital here.
Once you have the fundamentals of the desired succession plan in
place, you need to take stock of the strategic plan for the business.
Results should align with stakeholder values, vision and mission
statements and ownership and management succession plans.
Family governance is the final piece of the succession puzzle. Consider
establishing family charter, advisory board/committee, code of conduct,
compensation committee, philanthropy committee, wealth education
and responsibility plan and other policies, as appropriate.
Although there are many common issues facing families and their
businesses when planning for succession, each family is unique.
With a commitment to engage in customized planning, the likelihood
of leaving a thriving legacy for future generations, rather than
a family feud, is dramatically improved. Without it, you are taking
a chance on a lifetime's work.
Noel Z. Golden is a partner with the law firm of Borden
Ladner Gervais LLP, practising in the wealth management area. He
is also president and chair of Ballet British Columbia.
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