Family business members' insights on navigating succession process

By Kent Rhodes, Joshua Nacht

Running a family business can be complicated. This is especially true when it comes to preparing for a smooth transition of ownership, leadership and governance to the next generation. What is the best way to start?

While much has been written and studied around succession and continuity planning, the way forward isn’t always clear or easy to manage, particularly since there is no one-size-fits-all solution.

As leaders of a recent a peer-to-peer workshop for family business owners and stakeholders, we explored the importance of creating and updating a succession plan.

Rather than basing our presentation on what the “experts” have to say about the topic, we wanted to generate a deeper of people’s experiences around succession or continuity. (We used the terms interchangeably.) In the process, we uncovered what the participating families saw as challenges, barriers, sound achievements and lingering questions.

We thought that the conversation and learning from this session — a fruitful and egalitarian endeavor — was valuable enough to share with a wider audience.

Reports from the trenches
We posed several questions for reflection, which generated a deeper discussion of the most pressing succession topics posed by participants — those who are facing these issues in real time.

1. What specific challenges are you currently facing in your succession planning?

2. How have you managed the notion of fairness and equality in order to distinguish between inheritance of personal assets and ownership or leadership of the company?

3. What conversations do you need to have?

a. Are buy-sell agreements in place and understood by everyone?

b. Have “graceful pruning” plans been discussed and put in place for those who might feel trapped into ownership, might pressure the business for money or might not support the new leader(s)?

c. Have you established policies for preparing the next generation of potential successors? What has worked best?

Several key topics emerged as participants shared what was “top of mind” for them regarding their succession planning. They shared questions they had about the planning process as well as advice, drawn from their experience, on what to avoid and what to do. These comments demonstrate what is most important to those who are engaged in (or just venturing into) succession planning.

Start early.
In terms of both continuity successes and challenges, conversations about succession with family members must be started early and in a proactive manner — before members of the next generation begin planning their own careers or educational focus.

Plan proactively for transition of shares.
Whether stock will be gifted or sold, it is best to create a cohesive plan for the redistribution of shares to the successor generation when the next-generation members are young. All family members should understand the plan.

Transparency and communication are essential.
Rather than keep succession plans under wraps until the will is read, it’s important to be transparent with family members. Issues such as the “hows” and “whens” of share distribution (including voting shares) to the next generation and what qualifications are required for those in management and ownership should be discussed openly.

Establish clear qualifications for the CEO’s post.
Whether the company will be led by a family member or by someone outside the family, being clear about the qualifications for the position, and how they might be developed, is key to a smoother transition. An explicit statement of the requirements also ensures that next-generation members know how they can best prepare themselves for the future.

Get an outside perspective.
Families in the midst of succession planning reported that an outside adviser can offer objective recommendations that can keep the process moving forward.

A family council can play an important role.
Families who had created even the most rudimentary family council — a forum for the broader family to discuss next-generation ownership and leadership — talked about how much it had helped them. They viewed their family council as a key to their success in a variety of areas, such as developing a family employment policy and clarifying training and development needs of the next generation.

Vision and values lay the groundwork for a sound continuity plan.
Reaching agreement on what the family wants (vision) and what is most important to them (values) is a challenge and can take time. Several participating families cited the ability to articulate the family vision and values, particularly with succession planning firmly in mind, as a good first step.

Have a plan, a backup plan and a Plan C.
Much like the strategic planning that needs to be done around the business (including disaster plans, safety regulations and insurance), a succession plan should provide an alternative or two that can be implemented if the first plan fails. A family may have a clearly thought-out transition plan, but several situations could throw that plan into disarray: an untimely death, changes in the family, shifts in the economy, and more. Secondary and tertiary planning were cited as important parts of the planning process.

Prenuptial agreements are a fine idea.
While many business owners might not think of prenuptial agreements as necessary or helpful, the wisdom of these documents becomes clearer in the context of succession planning. Restricting ownership to direct descendants of the founder keeps the business in the family in the event of a divorce.

Fair does not mean equal!
Children and grandchildren are quite effective at training parents and grandparents that “fairness” means equal distribution of assets. But this principle does not apply when it comes to dividing ownership shares or offering management positions to family members. The long-term needs of the business must take precedence in these cases.

Independent board members can offer guidance.
Family companies that engage independent board members prior to a transition will be able to turn to these seasoned professionals for advice. Independent board members can provide objective advice not only on business matters, but also on developing strategic plans around succession.

Use objective assessments to set compensation.
As the family grows along with the business, good succession planning includes a clear process by which pay for family managers is determined. Although there is a cost associated with this, using an industry-based compensation study will help smooth any disagreements about fair market value for various roles in the business.

Create and adhere to a fair, predictable process.
A clear road map for the next generation regarding how they might best prepare to be effective and responsible owners, managers and/or board members is the foundation of a fair succession process. Developing it early will give them time to better understand the family firm and consider how they might best fit into the family’s vision for the business.

Develop future leaders for the business and the family.
Succession or continuity planning doesn’t just apply to the business. Establishing separate roles for leadership of the family and the company can provide further opportunities for family members. In addition to joining the family business, family members might play roles in the family council, family office or family foundation.

Sharing experiences
We have found that family business members love to learn from one another, and the peer-to-peer format of this session yielded a rich experience for all involved. The family business members who participated in the workshop shared stories of their successes and ­failures and raised pointed questions.
Their comments ­reinforced the notion that carefully developing a continuity plan, and updating it regularly, is one of the most effective ways families can manage the inherent challenges found at the intersection of family and business. We thank all the participants for sharing their insights.                      

Kent Rhodes, Ed.D., is a senior consultant and Joshua Nacht, Ph.D., is a consultant with The Family Business Consulting Group (


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May/June 2018

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