This is part 2 of Dr. Baskin’s post on Continuity vs. Succession. Read part one here.
Continuity Planning differs from Succession Planning because it addresses the deeper issues of how ownership and governance issues will be handled in subsequent generations. While Succession Planning is generally about who will succeed YOU, current generation leader(s) of the business, Continuity Planning is all about how WE will go on together. As a family business transitions from first generation to second and third generations and beyond, success depends more upon a group process than a single leader.
Continuity Planning requires thoughtful preparation for the following questions:
- Who will own the business in the next and succeeding generations? If the major transfer of wealth in an estate plan will be in the form of an operating business careful planning must be done to protect this engine of prosperity for the benefit of all owners. What will be the responsibilities and benefits of ownership? Whether the assets are transferred directly to members of the next generation or held in trust, those intended to benefit from this blessing must be prepared to be good stewards together.
- How will the next owners make decisions together? When a generational transition benefits multiple owners (siblings or cousins) they need to be prepared to work together as owners and stewards for subsequent generations. An otherwise well-educated and business family that has relied upon the current generation to make decisions can disintegrate if they are not prepared to make decisions together. This is particularly true as families grow and all owners cannot or choose not to work in the business. The CEO must become accountable to ownership when he or she is not the sole owner.
- What will guide the next owners? When parents are no longer able to provide guidance and counsel to the next generation where can this support be found? A clear understanding of the family values that made it possible for previous generations to build a successful family and business is critical. Having these values documented in a way that allows the current generation to continuously review them and apply them to their situation and time can provide a stable foundation for family harmony and business success.
Continuity Planning is also planning for good governance practices in subsequent generations. Providing decision making structures and processes that assure all owners, whether they hold an executive position in the business or not, that their interests are equally considered and their voice can be heard.