Family business tips from Kiplinger

By Deidre Grieves

kiplingertips_246Knight Kiplinger, editor-in-chief, president and chairmen of Kiplinger Washington Editors, knows a thing or two about running a successful family business. He grew up surrounded by the publishing company his grandfather created in 1920, and watched as his father, Austin, took the helm in 1961. In 1992, Knight Kiplinger was named president and has been leading the family's financial media company ever since.

We asked Kiplinger to share some advice for family businesses on corporate governance best practices, succession planning, and developing next-generation leaders. Here's what he had to say:

Hand over title and authority at the same time. "In an unhealthy family business, the older generation transfers the titles, but they don't transfer the authority," says Kiplinger. "There are instances where a senior member of the family names a son, daughter or nephew to president, but does not convey the authority and the older person continues to act like the leader even though the titles have changed." Older generations should be prepared to step away from the day-to-day decisions and operations once they hand the reins to the new family member in charge.

Treat family shareholders equally. "It's very important in a family business that you deal with all the family shareholders equally and fairly," says Kiplinger. He suggests opening up a stock redemption window, setting aside a pool of available capital, and giving all family shareholders the chance to redeem stock proportionately to their percentage of shareholding.

Don't pressure the next generation. "Family businesses should never pressure children to come into the business, and children should never feel pressured," says Kiplinger. He recommends that young adults work outside of their family's business for a long time before they join it. "It's the only way that they will get an accurate read on their talents and their accomplishments," Kiplinger says.

Pay modest dividends. In addition to helping propel growth, keeping sufficient capital on hand can aid in the buyback of stock and pay for estate taxes. "One reason to run a company conservatively and to retain a lot of the earnings is not just to have working capital for a rough patch, but to buy in shares," says Kiplinger.

Diversify your assets. Over time, the Kiplinger family invested earnings from its publishing business in portfolio assets, including real estate and other stocks. "It created a parallel income and profit stream that was useful in many ways," Kiplinger says. "It supported our publishing business during an off period -- and boy, there have been a few -- and it also provided liquidity for strategic planning within the family business."

If you're going to sell, find an appropriate buyer. If your family plans to sell the business, make sure to research and vet the companies that come to the table with bids. "You shouldn't necessarily take the highest offer," says Kiplinger. "If you care about your employees and your customers -- if you care about the quality of what your company produces -- the highest offer might not be the best offer. Look for a good steward."

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