The toughest decision

Family businesses need a succession plan

Family Business
Family Business

Last updated on March 17th, 2020 at 01:38 pm

If you are a family in business and don’t get HBO, I strongly suggest you plunk down $14.99 and binge-watch “Succession.” It is the all too real story of a media tycoon born outside the U.S. who immigrated here and built a fortune. 

Ted Turner and Rupert Murdoch come to mind, although this show is really a fictional account.

The part that isn’t fictionalized is the drama, which takes place in the family when the 80-year-old father has his birthday and previously announced his turning over the reins of the family business. The show is an interplay between the owner’s spawn as they negotiate to rise to the top of the company. And then dad suffers a brain aneurysm before the announcement of his successor can be named.

When groups have events dealing with family businesses, they frequently fail. The reason is simple: the succession planning that most work toward is not the succession planning most businesses need. The hard skill accountants, financial planners and bankers who flock to assist are rarely the ones that family businesses need the most. Don’t get me wrong, they need those skills and service providers. But the problems that many family businesses face are not going to be solved by those entities. 

The soft skill relationships are usually the biggest problems I see. The interplay between family members. The brothers who don’t get along. The cousins who don’t get along and never intended in being in business together. The sister alienated by a gentrified father who wants his boys taking over and, well, they don’t have the aptitude for it. The father who stays in the business too long because his worth is tied up in the business – his self-worth along with financial worth.

It is sometimes more difficult to have a challenging conversation with your family than it is with a business associate. After all, you are the son or daughter talking with your parents. Many families in business don’t transition well from that parent-and-child relationship. As a result, the child is always trying to live up to the unrealistic expectations of the parent and the parent is constantly lording them being the parent over the child, who might now be 40 or 50 years old.

Another fact of the matter might be that the child is simply not capable of taking over the family business. If the parent tells the next generation this, if they realize it at all, they risk the enmity of the child. But if they move forward with a child who is not ready, and perhaps will never be ready, they will eventually run the business into the ground.

The toughest business decision the owner and founder must make is who to pass the business on to. Who is the next in line? This is what rarely goes smoothly. This is what is usually ignored, to the peril of the longevity and survivability of the company. 

In previous columns, I have identified other directions business owners can go if they find themselves without an heir. Hiring a regent is one possibility, but it is usually met with mixed success. Having the next generation buy the firm rather than gift it makes sense and all the pundits suggest this is the best way to ensure the interest and buy-in of the next generation, as well as the cashing out of the business the owners need. But some owners view this as transactional and can only see their way toward gifting the company ownership.

Finally, there is always the option of an outright sale of the company to a third party that is not related. In some ways this destroys the positives of what a family business is supposed to be and should be seen as extreme. I am frequently perplexed by business owners who decide to close without selling or passing the business along. Perhaps this is a vestige of the real problem: the difficulty in deciding who the next person up really is or should be.

If you watch “Succession” on HBO, know this: it isn’t too far-fetched from the reality that I often see in real-world family business succession planning.

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David Borst
Dr. Borst is the retired Dean of Business at Concordia University. He started up five businesses under borstthebrand.com and is COO of the Family Business Legacy Institute. He can be heard every Saturday morning as Dr. Dave at 6:20am on WTMJ radio with the FBLI show- "All Business". Dr. Borst is an entrepreneur, author, speaker, and blogger of a variety of topics from religion to politics or any of the topics you are not supposed to discuss.

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