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How Family Business Succession Planning Becomes Succession Implementation

The Right Succession Discussions for Each Generation

Last year, in my article “The Importance of Planning for a Thriving Family Business,” I touched upon business succession planning beyond the second generation, the role of communication in succession planning, asking for input, designing an objective Family Referee to step in as needed, and more.

As such, a big question from several readers spun out of that topic—the answer to which will help provide some solid next steps to transform succession planning into true succession implementation:

“You spoke about a time to have a series of one-on-one discussions with various family members in order to get their take on a general outline of events about the business succession planning. What do you cover in these one-on-one discussions, and what needs to be clear before calling the big, joint meeting(s) for the family?”

Before we get into specific answers, it’s crucial to remember two goals above all:

  1. Maintain the family as a family.
  2. Do not let the actions during succession planning create an issue(s) that drives the next generation(s) apart.

Whether the discussion is being brought back to succession planning after a few false starts, or the discussion just started for the first time, I’m going to focus on a Generation 1 to Generation 2 transition for the purpose of simplification. (It gets much more complicated as the number of individuals and families involved increases.)

What To Cover In The Business Succession Planning Discussion: Generation 1

Our Generation 1 owner:

  • Recently turned 60 and is healthy.
  • Wants to lay out the plan for his retirement by the time he turns 65.
  • Seeks to pass on the leadership/management and ownership of the business to family members of Generation 2.
  • Does not want to sell the business but does want to have a means to be supported by the company in his retirement..

Here are some of the questions we want to ask our Generation 1 owner prior to the expanded conversation with family about succession planning:

  1. What types of payments do you expect to support your retirement goals?
  2. Assuming you want to treat all equally from a financial standpoint, will this happen through an ownership mechanism or some other financial tools?
  3. Upon retirement, what role, if any, will you have in the ongoing leadership and or management of the business (e.g., board member or board chair)?

What To Cover in the Business Succession Planning Discussion: Generation 2

Our Generation 2 family members (4):

  • Two members are active in the business.
  • Two members are not active in the business.
  • All members currently receive some payment from the business.

Just as with the first generation of ownership, Generation 2 family members deserve their own set of questions prior to the large family conversation on succession planning, such as:

  1. What are your expectations and desires related to financial support from the business, if any?
  2. What are your expectations regarding working for the business? What about the expectations of your children?
  3. Are there other interests you have regarding things that the company should be contributing to, such as a social action initiative?
  4. To the extent that you are married, what, if any role will your spouse have in the business?

    As the saying goes, “If you have seen ONE family business, then you have seen ONE family business.” 

What To Cover In The Big Joint Meeting Among All Generations

After taking the time to gather input on how to address the issues raised one-on-one, it is then time to start the group discussion so that all can hear about the plan.

The key word here is “start.”

We have probably all seen instances where the owner says: “This is the way it is going to be.” The better approach maintaining some sort of family unity is to begin a discussion with the desire of bringing the issue to a conclusion within a stated period of time. This may also be the launch for an ongoing discussion with a family assembly or family council to discuss progress and where things might be necessary to change.  Examples of questions in this group setting may pertain to the areas of:

  • Payment –Everyone is going to receive some level of payment from the business. However, are we in agreement that those working for the company will likely be receiving more than those who aren’t?
  • Dividend vs. Reinvestment Decisions – As the ownership will be divided between those working in the business and those who aren’t, how will decisions be made regarding paying dividends versus reinvesting in the business? This is one of the great business succession planning issues that typically prompt Spitulnik Advisors to suggest creating a set of family guidelines for a family council as well as a board that has independent directors.
  • Leadership – As some family members of the next generation are active in the business and some are not, what criteria will we have for selecting who is in charge or whether there will be co-leaders? Is it  automatic that family members will have a job, or are there prerequisites for joining the business such as having worked at another firm for a period of time and having achieved a certain level in the outside firm?

Remember this: Every family and family business is unique. As the saying goes, “If you have seen ONE family business, then you have seen ONE family business.”

Yet, when you commit to one-on-one conversations among the different generations of family members to address their specific goals and plans, you can then move into the larger, ongoing group discussions that bring everyone together in alignment, both physically and in terms of thinking about succession.

As a result, before long, you will find yourself moving from business succession planning to succession implementation.

[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: The Role of the Board in a Private Company and Roadmap to Selling a Business or Taking on Outside Investors.]

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About David Spitulnik

David Spitulnik is a successful executive with over 40 years of experience in both large technology companies and in consulting to and leadership of mid-market, closely held and family owned businesses across a variety of industries. In addition to serving as chair of the Private Directors Association’s Private and Family Business Center Outreach Committee, David…

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