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Creating a Succession Road Map for Family Businesses Thumbnail

Creating a Succession Road Map for Family Businesses

Dr. Jim Kestenbaum, President/Founder

As is well known, family businesses are the cornerstone of the American economy. And as much as family businesses create major short term value for their local communities and economies, they also create even bigger long term value when they last from generation to generation. One of the main ways this is accomplished is through intergenerational transfer of ownership and leadership from generation to generation.

Intergenerational transfer is accomplished by creating a succession road map. If you’re hearing this term for the first time, you might be thinking, “Why is something so formal needed for something that seems so simple – I’ll just let the kids take over when I’m ready to retire.” Fact is, succession isn’t that simple. And, lack of using sound succession techniques can both jeopardize succession and intergenerational transfer of the business, as well as making a family miserable along the way!

What makes succession difficult?

At its most basic level, succession sometimes doesn’t go well just because the process is over-simplified. This leads to a lack of due attention to the issues that can easily derail succession, like:

  • Who in the up and coming generation will be the next top leader of the business?
  • How/if the business will be purchased by the incoming ownership generation?
  • For those not in the family business, how could they fairly participate in the current generation’s wealth?
  • What is the role of nonfamily key employees in the succession process?

I could easily continue writing this list. The important point is to realize that succession has a number of moving pieces. And, giving those pieces the right amount of planning creates a well-executed succession plan.

Lastly, a written and agreed upon succession road map becomes a North Star as the family potentially navigates some very rocky emotional waters.. Looking at the short list of questions above, it’s clear that the family participants in this process could easily become upset. And, when people are upset, they lose site of the goal and what’s really important.

To illustrate this point, let’s look at potential land mines that could arise for the four questions listed above:

  • “You mean you’re going to pick my younger sister to run the business –
    I’ve worked here my entire career and she showed up two minutes ago.”
  • “You mean Mom and Dad aren’t just giving us the business –
    it’s our right to own it.”
  • So, my brother – the new CEO – will one day be a millionaire and I’ll just get the proceeds from your life insurance policy when you die. That’s not fair.”
  • “Why is Bob getting stock in the business when our generation takes it over – he isn’t even a member of our family.”

By now, you should be getting an idea of how succession can become rocky, quickly. And, how having a succession road map to keep everybody focused and on course would be invaluable.

Here are some simple steps to help your family start thinking about its family business succession road map:

  1. Determine the approximate timeframe when the current generation will be moving out of their roles owning and running the business.
  2. Have each family member, separately, write the goals to be accomplished by the time the next generation is owning and leading the family business – map this out on a quarterly basis.
  3. If you’re family already has high trust and can pretty much say anything in front of each other, email the plans to each other.
  4. In a meeting(s) of the family, have the top executive run a meeting to start working towards one, unified plan. Start this meeting by establishing ground rules for how you’ll communicate during this discussion – calm, with respect, noting specifics, etc. Then have a conversation (that will likely take more than one meeting) to do the following:

a. Determine areas of agreement

b. Determine areas of disagreement, and, why and what can be done to create alignment

The result of these discussions can be wonderful – creating a legacy for the family and community.

Using a succession road map is a structured and systematic way for a family business to best ensure it keeps focused on the mission of fully and successfully creating the intergenerational transfer of their business.

James D. Kestenbaum, Ph.D. is the President/Founder of The Solutions Group – started in 1991. He is a sought after family business consultant assisting family businesses in the areas of family business succession, family decision making and leadership assessment.

 James D. Kestenbaum, Ph.D. is the President/Founder of The Solutions Group

Check the background of this firm/advisor on FINRA’s BrokerCheck.