Continuity vs. succession: The BIG question for family business (Part 1)

Otis Baskin
Otis Baskin

The most frequent issue that brings new clients to my practice in family business consulting is “SUCCESSION.” This is often viewed as the big question in a family business because so many are asking about it.  Key non-family executives want to know who will be their next boss.  Bankers want to know who will be responsible if something happens to the current leader.  Customers and suppliers want to know who will be in charge in the future.  Children working in the business want to know who is expected to step into mom or dad’s shoes.  Other owners, both family and outside investors, want to know who will be responsible for decisions about how their capital/inheritance will be deployed.

As important as this question is, it really isn’t the biggest question for a family businesses.  It is possible to do a great job of succession planning and miss the bigger point of Continuity Planning.  I worked with a very successful and thoughtful family business leader who did a comprehensive job of succession planning.  He involved all significant stakeholders in the decision including family, key executives, and outside advisory board members.  While all four children had MBA degrees and excellent work experience, the search quickly narrowed to the two sons who worked in the business.  When the next president was finally selected everyone, even the finalist not chosen, understood that the process was fair and based upon a set of objective criteria.

All went well for the new president through his first year at the helm of his family business.  By the end of that year the business was booming and the factory was working double shifts trying to fill end-of-year orders.  The new president had also promised his wife and four children that they could visit her parents for the Christmas holidays.  As his wife pressed him for a firm date when he could leave for their holiday frustration grew because all the pressures at work made it difficult to set a date.  One day his father was in the office and the new president shared his frustration.  “I don’t understand your problem” was his father’s reply, “the company jet is at the airport and the pilot is on call – take it; that is what I would do.”

When the new president returned home from his holiday he had emails from his three siblings which read:  “When it was dad’s company it was dad’s airplane but now it is our company and it is our airplane.  (A good estate plan had gifted 80% of the shares to the four children.)  And you owe us money for the private use of a corporate asset.”  The new president understood, he was a CPA who knew corporate tax law.  But his siblings were upset with him and his father was upset with the other children.

The real issue was that while their father had done an excellent job of succession planning, he had failed to address the deeper issues of how his children and grandchildren could own the business together and make decisions about the deployment of their jointly owned capital together?  Addressing these deeper issues is what Continuity Planning is all about.

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