The complexities of family dynamics in transition planning
By ATB Financial 14 December 2020 4 min read
Focusing on the present when you run a family business can be challenging enough, but when you begin to look ahead to your company’s future, a new crop of questions line your road to success. What’s the danger of delaying your process to prepare the next generation of leaders to helm the business? How do you navigate the emotional complexities of transition planning when the people closest to you may be vying for the most important position in the family business?
We spoke to several experts in transition planning and executive management to recommend strategies that family business owners can use to help navigate the many decisions ahead of them.
Don’t wait to get started on your transition plan
Owners of family businesses often stay too long in their roles without preparing their families for a transition affecting all stakeholders, says Amanda Vella, senior director for Business Advisory and transition consultant at ATB.
Business owners should be planning ahead to carry out a managed transition to the next leadership team. A Deloitte report paints a grim picture of family business longevity—only 30 per cent of family businesses survive into the second generation, 12 per cent continue into the third, and mere about three per cent operate into the fourth generation and beyond.
The report goes on to say leaders have to make transition planning an urgent issue. “An unprepared new management group, or even a poorly managed transition to competent management, can trigger significant loss in value,” it reads. “If leaders want their businesses’ intrinsic value to remain intact for the benefit of their successors, they should begin the planning process sooner rather than later.”
Finding the qualified successor…with some help
One of the pitfalls of transitioning from one generation to the next in a family business is putting a son or daughter into an unfamiliar role, notes Jason Bacon, senior manager for Entrepreneur Education, at ATB.
He also says that forward-thinking family-business leaders will be proactive in preparing their successors by folding them into the day-to-day operations before the transition to glean if they’re engaged and interested. The more an outgoing CEO can determine if their children have an entrepreneurial spirit and are willing to be diligent with the intense work ahead, the less arduous the transition will be when the time comes for a new owner.
“Personally coaching your family member can help the transition run smoothly too,” Bacon adds.
Vella says involving your potential successors in the business can give them the opportunity to learn about the nuances of running the business. “It’s important to bring your successor into the business as early as possible, and mentor them up to best position them to one day lead the business. This approach helps build trust and confidence with the management team, ensuring they will want to continue working for the successor once the owner retires,” says Vella.
In order to give a successor the freedom they need to thrive as a leader while still providing insight or advice after transitioning out of the business, owners may want to join the advisory board of their business.
But finding the ideal successor shouldn’t be a decision relying solely on discussions with family. Include a third-party professional, who doesn’t have a vested interest in the business and can share details about what worked with other family businesses.
Inviting an impartial mediator is important for business owners to see realities they may not notice about their close family members, Vella says. After all, selecting who should run a business efficiently is very different than enjoying someone’s company and shared history.
Bacon recalls a situation where the keys to a family-run agri-business were handed over to the owner’s daughter and after six months she admitted she wasn’t inspired to run the company at all. “That kind of insight could have been discovered ages ago if a transition-planning consultant was involved and had the right conversations with all parties involved,” he says.
Deloitte’s report on succession planning and successor considerations goes one step further, advising that “before inviting a candidate to join, have him or her meet all of the shareholders and key managers to make sure all applicable parties are comfortable with the match.”
Whether you can separate emotion from the process of selecting a successor is the million dollar question in transition planning. There is no one answer that will suit every family business. But with help from a professional third party, business owners can accumulate key details about prospective candidates and see new facets of their business acumen.
It’s also useful to approach family members who weren’t selected to lead the company with the same kind of tact and respect you’d expect. Being rejected can be painful, so you will want to stress that your decision was solely a governance issue and not a shift in how you viewed them within the family.
Continuity in a family business is crucial because it upholds the legacy of both the family and the business. When business leaders have a plan in place, they lessen the chance they’ll put their life’s work, and their family relationships, at risk.
Find out more about selling your business successfully with ATB’s Business Transition Guide. Want to talk some more? For tailored advice around business transition planning reach out to our Business Transition team at firstname.lastname@example.org