Family Ties Online: Succession, the Critical Decision

Succession is one of the most perplexing problems that the owners of a family business must face. “Don’t worry, someday the business will be yours” is not an unusual way that some handle the issue. But consideration must be given to whether there is a capable successor available or, if available, is the potential successor interested in taking that role? Or should the business be sold to employees, to a competitor or to a stranger? Is liquidation the better path to follow?

While the decision appears simple enough, it is a complex one filled with emotion, along with tax, legal and human consequences. Unfortunately, it is a decision that many families fail to make at all, thinking that whatever the decision, someone will be hurt. As a result, succession is sometimes decided in a court room or in the offices of tax counsel or legal counsel after the fact. And always present are the anguish and trauma to the family relationships.

Some family business owners believe that to make such a choice during their lifetime is a reflection on their own mortality. “Once I decide on the future owner(s) of the business, I have no reason to go on.” Others believe that there is no person, family or non-family, who would be capable of effectively owning and operating the business while others just believe there is no urgency to making such a decision. And then there often is concern about how the ones “not chosen” will feel about the situation. Will they be supportive of the succession decision? Or will there be a continuing battle which tears the family and the business apart?

It is the lucky family whose relatives consist of only one qualified person to leave at the helm to captain and steer the family business in the years ahead. Decisions regarding which child or relative will take command may be disputed among siblings and other family members. The repercussions could affect the future success of the company or even its very existence. Often, an additional challenge arises when sibling arguments about control affect the productivity and morale of the employees, which in turn negatively impacts working relationships within the business and could harm the business itself.

It is not unusual to see no decision being made before the death of the owner, which generally results in putting the business in the hands of the surviving spouse and/or children of the deceased. Often, the result is to have multiple owners, some who may not want to be in business together having to resolve an unwanted and untenable position accented by extraordinary legal and accounting fees. Putting off the succession decision can be as traumatic for the family as for the business.

To minimize the emotional, legal, tax and human problems, ownership succession should be planned prior to the death or incapacity of the owner. And the plan once completed should be communicated to the family and key employees.

A family business can offer a sense of adventure and freedom that few companies can ever hope to match. There is much that can be accomplished once we commit our mind, spirit and passion to the endeavor. In a family business, that means passing ownership from one generation to the next in a non-destructive manner in accordance with carefully made decisions and a documented succession plan.

In succeeding posts we’ll tell you about some actual stories of succession, the good, bad and ugly. In the meantime, please share your stories and issues of succession.