While it is true that the family owned business is a complex entity that can generate emotions that range from happiness, love, gratification, anxiety, frustration and sadness, it is a quite simply a vital part of the American economy. These families use their common purpose and values to have amazingly successful businesses. But no matter how successful the family business is or how harmonious the family may be, succession in a family business is both inevitable and an emotional and often complicated time.
Simply put, succession is a transition. There are many types of transitions that occur in a family business, but succession is arguably one of the most important. Three common succession transitions include:
- Business Head (CEO/President/Owner) Succession
- Board Chair Succession
- Family Leader Succession
Business Head Succession is a critical strategic reflection and conversation that should involve all family business stakeholders i.e. owners/shareholders, heirs, board members, operating executives. This reflection should look at what the business has achieved and how the business leader has contributed to the success of the business. As well, it should look at the gifts and capacities of the succession candidates with this in mind but also with a view toward the future and what skills and knowledge might be critical to sustain the success of the business. Finally, an important part of the reflection should be on whether children of the founder should be considered serious succession candidates, and why.
A Board of Directors of a family owned business, particularly when the business is privately held is the most important linking pin to the owners and family. This body helps direct strategic decisions that will be in the best interest of both the sustainability of the business and the continued well being of the family. The Board Chair is often a guide, an advisor, an accountability partner, an executor who needs to understand and be completely committed to his or her fiduciary duties to the family. Considering succession of a Board Chair should involve the family as well as the Business Leader and should be done carefully.
Family Leader Succession often occurs when a founder passes away. The head of the family is the rudder for the family in its dealings with the Board and the Business. Some families choose to elect a governing body that acts in this leadership role – this body is called a Family Council. But if a family does not have such a governance mechanism in place, it is important for the founder to work with his or her family as they grow older to very clearly state their wishes about how they would like to see the family ‘led’ after they are gone. This succession also includes shepherding the family through a wealth transition so that the estate planning and transfer of wealth is carefully thought out and executed by estate advisors.
You will find a good many resources on our website that will help you understand in more detail these and other transitions that families who own businesses must navigate. If your family is well organized and well on its way in their transition, some of the templates and documents will be of good use to you. If you are just beginning to think about these issues, we encourage you to sample what we have to offer. Also, some families find it helpful to hire a family advisor to work with them through their transitions.
Have you heard about the importance of succession planning for family owned businesses? Do you know how that applies to your family business? This segment describes how succession often occurs in family owned businesses and why you may want to start thinking about it.
Do you wonder why it is important to begin the succession process in your family even though it won’t happen for many years into the future ? Does it make a difference if I know what is going to happen but your heir and other stakeholders do not? This segment helps lay out the aspects of succession in family owned businesses and how it can affect many, if not all, of the family business stakeholders.
Do you know how your children will react to your ideas/plan for succession? Have you communicated the plan to them? This case study is an example of two heirs (adult children) learning about a possible succession plan of their father’s and their reaction to the information.
Have you begun your succession planning? Do you even know where to begin? This online quiz is a mix of standard succession planning possibilities. We cover what is and what may be a common misperception.
Case studies are descriptive scenarios that help people think through an idea or concept while applying concepts to the example provided. This Reston case study would be great for a sibling partnership or cousin consortium group. This specific case study allows the participants to consider a scenario about family business management succession while considering how […]