So, You’re in the Family Business… by Paul Karofsky
Julie (sister, leaving a family business meeting with her brother): That does it! I am finally convinced that Pop thinks he’s going to live forever. I can’t believe he’s not as concerned about the future as we are. How do we get the message through to him?
Frank (brother): He knows he’s mortal, Julie. He just doesn’t like the idea. And there’s no way we’re going to get him to talk about it until he’s ready to.
Julie: Then how do we plan for the future? What’s going to happen when he dies? Who’s going to own the business? Who’s going to run it? Are Mom and our attorney going to make those decisions? They’ve never really been involved with the business. We’ve been working here for many years, now. Maybe we’re going to have to decide?
As Julie and Frank leave the family business meeting they ponder the situation. Both have worked in the business for close to ten years. Frank is 32 and Julie is 29. They have worked hard and the business has grown substantially. For their dad, who is 61 years old and in excellent health, the business is practically his whole life. He still goes in at 7 AM each morning, and even works most Saturdays, except when he’s at their vacation home. And even then he calls in at least once a day.
Every time that Frank or Julie raises the question about planning for the transfer of ownership of the Company or a leadership succession plan, Dad has a steady response like, “We have time to work on that…” or “What’s your hurry? Are you kids trying to get rid of me?”
What’s Going on…
Frank and Julie are reasonably concerned about their futures and that of the business. Their careers, the security of their families and future of their heritage is at stake. Everyone has heard and read the horror stories of how a lack of succession planning is the number one cause of the failure of most family businesses to make it into a second or third generation. Likewise, Dad, too, is struggling. Like most founders and CEOs, he has the same emotional attachment to his businesses as to his children. He needs help to focus on continuity. In addition, Dad’s facing this issue is his admission that he is growing older. The reluctance to deal with one’s own mortality is natural. While he may know he’s not a puppy anymore, Dad may not be ready to see himself as “old.” And, indeed, he does not have to. But this does not mean that he still has lots of time to plan. Dad may also be reluctant because he sees no quick, clear and simple solutions. Or he may not be convinced that his “kids” are ready. He may hope that by “putting it off,” maybe the problem will go away. Unfortunately, this will not be the case. Rather, it will just get worse!
What should the family do…
Make the issue discussible. Ideally, Dad will bring up the topic with his wife and children. But sometimes the younger generation may need to prod a little. Should Dad be unwilling to respond, the help of a spouse, a peer, or advisor may be needed to stimulate the process. Or, you could always leave a copy of this article on his desk. Regardless of how it happens, everyone needs an opportunity to express thoughts, concerns, dreams, hopes and fears while both generations work together toward a common goal: not for Dad to leave, but for the business to continue. This can actually become a wonderful opportunity for a family to affirm itself, to validate the strengths of each member, to acknowledge the values and love it shares, and its desire to pass those on through future generations of family and family business members.
Separate the tasks. While in general, the issue is one of continuity, there are two distinct, but related tasks. One is ownership transfer which demands asking questions like: Who will own the stock in the business? Spouse? Children? All children equally? Only those working in the business? More to those working in the business than to those who have other careers? In-laws? Non-family key employees? A trust? A philanthropic institution? A sale to a third party? The other issue is leadership succession raising equally complex concerns: This has been Dad’s business. Must he now suddenly retire completely? Who are potential successor CEOs? Daughters? Sons? Spouse? Siblings? In-laws? Non-family key executives or an outsider who needs to be recruited and trained? Or one of the above on an interim basis, while the next successor is being groomed?
A special plan for Dad. The “boss,” who is frequently the founder or has been the CEO for many years, certainly deserves some special focus. In this scenario, Dad, with support from his family, needs to have something to move toward rather than from. He needs to have a goal, a target at which to shoot. Perhaps phased into gradually over time, it must be something significant and important, albeit a leadership role in the local golf club, hospital board, or trade association. Perhaps some travel plans with grandchildren are the priority or the establishment of a family foundation or family investment office.
By taking the lead role in the process, Dad remains in control so that his desires and dreams are realized in his lifetime. He can help his heirs of leadership and ownership grow and make the transition. As tough as it is, as hard as it seems, implementing a successful succession plan is the ultimate reward for any chief executive in a family business. For the successful perpetuation of the family business may just well be the closest he will ever come to immortality.
Establish a timetable and articulate the steps. This is often a process that covers several years; it warrants careful planning. Establish a timetable of action steps to be performed to make the changes both in ownership and leadership. Frequently, this is done with the help of family business, legal, accounting, insurance, and investment advisors. A few hours of professional time at this stage can save many later on. For a change in ownership transfer, there are lots of alternatives to explore with significant tax implications. For a change in leadership succession, steps include the establishment of criteria, an assessment of potential candidates by internal and external people, decision making over single versus co-leadership, and a training/skill development plan for the chosen successor(s). Preparation for both changes should include an assessment of the current state of the business and some strategic planning. A clearer expression of what the business is and where it is going, synchronized with the needs and skills of family members, is an effective precursor to the process.
Paul Karofsky was president of his family’s third generation business. He completed graduate studies at Harvard University doing research in family communication styles. Paul is Executive Director Emeritus of Northeastern University’s Center for Family Business and facilitates its Leadership Development Forum. He is the Founder and CEO of Transition Consulting Group, Ltd and is a frequent speaker and resource to educational institutions worldwide. Paul consults to family enterprises and can be reached at [email protected] or 561-626-1110.
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