Planning for future ownership and succession is one of the most pressing concerns for every family business. So what type of help is effective?
Whilst some families implement succession effectively and with a minimum of fuss, others are reluctant to embrace change.
Such families often accept compromises ‘for now’ so that business and family life can continue ‘at a tolerable level of anxiety’ — a practical description of a situation where everyone knows that key decisions about the future are being put off. Unfortunately, this can expose the family to the risk of unplanned events, such as the death or illness of a key family member or a business crisis. Everyone knows that delay is worrisome and risky, but it is also human and understandable.
Succession planning often feels threatening to families. This is hardly surprising, when one considers that a network of harmonious family relationships, family members’ careers, status, family reputation and money are all at stake.
Also, as human beings, we have a biological reaction to perceived threats.
- Confront the threat (fight).
- Run away (flight).
- Do nothing (freeze) — pretending the threat is not there, hoping it passes without damage being suffered.
Families often prefer to take evasive action — flight or freeze rather than suffering further stress by trying to deal with — or fight — the issues that are causing anxiety.
The good news is that there is a growing body of knowledge and practice about how business families can cope effectively with succession planning and change. This is not just about providing technical information or a tax solution, although these are always part of the economic equation. Rather, it is about providing practical help with the process of making crucial decisions about creating and transferring wealth, power, roles and titles, while being fair, loving and considerate with the family and their business interests.
The effective and helpful family business adviser should have plenty of information about how other families have navigated succession, but they also must know how to facilitate discussions on sensitive matters between generations of the same family and sometimes other stakeholders, like non-family directors and trustees. This requires hard knowledge about how to balance the competing priorities.
It is particularly important that change is led from the top, by the senior family members. For example, only the seniors can address the affordability of retirement and contemplate life outside the family business. Only when the seniors are ready to let go can the next generation begin considering if any of them are able and willing to take on new ownership and management responsibilities.
If either generation side steps the challenges of personal change because the costs in terms of change of career, lifestyle and status, among other things, are too high, then change will not happen. A bit of creative help from experienced and independent advisers will help to ease the process.
Written by Ken McCracken of KPMG Enterprise