Family business succession can be joyous when there is a succession plan. But when there’s no plan in place, it can be anything but joyous.
It is a familiar scenario for a family. Husband and wife build a family business, take pride in its growth and achievements while it provides for the family and then some. The goal is to then pass it on as a legacy to the children, so they don’t have to start from scratch. And then, when we are ready to scale back or retire, our children will carry on the family business tradition and build it bigger for their children…
The quintessential American dream, and so many baby boomers, like some of their parents before them, achieved family business success. Now, their prized possession, in many ways like a child they raised and nurtured, is ready with pride for its next phase of growth. And Mom and Dad, successful business owners, ready to relax some, sit down with their children at the end of the year over a holiday family meal. The time has come, Dad opens, to pass the golden goose on to their four adult children, three of whom have started their families. So the conversation begins the anticipated celebration of the passing of the business on to the kids.
And then the dream unravels – gradually at first, and then steadily – into a nightmare. John, the oldest child and a chip off his Dad’s block, has always assumed he is the heir apparent to take over, run the business and keep it on its steady and successful course. He is ready to become the new patriarch of the family, as well as the business.
Karen, the CFO for the last 15 years, went right into the business after getting her MBA. It’s the only job she’s had and it has allowed her to balance work with raising three kids. But now that they are older, Karen thinks about seeing what it would be like to work for another company other than the family business. For the past three years, she has been in the uncomfortable position of being the buffer between two fighting siblings who have decidedly different views of where to take the business moving forward.
Samantha is a workaholic business and social media whiz kid who loves to challenge all norms and business frontiers. Tech savvy, always exploring new markets, she is always at odds with John, whom she calls “Old School” or “mom’s favorite”. Her latest idea is to double down on a division that she personally turned around over the last two years. She also wants to buy a plant in Galway, Ireland, moving there herself, and expand the company’s overseas markets.
And then there’s Meghan, the family’s free spirit, her husband Zach, who works in the company as a manager and their young children. They have often talked about moving west to a more progressive place like Boulder, Colorado to raise their family. For them, this means cashing out and getting paid handsomely for her share of the business and his sweat equity.
Needless to say, the dinner conversation doesn’t end well. Tension rises between the siblings and Mom and Dad. Two weeks later, Samantha and John are looking to hire lawyers and fight it out.
Without a family business succession plan, there are too many untested assumptions and nothing to manage the conflicting individual agendas. If this family business had developed a business succession plan, there might have been clear guidelines for making decisions and settling impasses. Decisions could have been made more objectively, rather than reactively and with raw emotion, heightened by the family dynamic. The family’s relationships – both personal and professionally – are now at risk.
This scenario is fairly common. About 98% of family businesses do not have a business succession plan in place. In fact, many never had an operating agreement or by-laws addressing how to run the business entity, make decisions and manage succession. Having not ever done a business valuation done, it’s anyone’s best guess what the business is worth.
If this scenario sounds like your family business, there are alternatives to the scenario of hiring litigation firms and fighting it out in court, and most likely ruining the family business and your family relationships in the process. A good first step would be to consult with a dispute resolution specialist to consider what options are available, how they would work to solve these problems and restore family harmony and business stability. A trained dispute resolution lawyer should be hired at a flat rate fee to do a situational process assessment, and carefully review all the factors presented by this family business dispute.
That’s what Karen and Dad do in this case. The assessment includes educating Dad and Karen on the various dispute resolution processes available – mediation, arbitration litigation, collaborative law, circle process – how each one works and what are the factors that determine which process they should use. Then, the assessment provides them with a blueprint, a recommendation on which process to use and why.
This first step by Dad and Karen will save the company, save thousands of dollars in legal fees, avoid the collateral damage of a dragged out multi-party litigation, maintain family relationships and put the family on a path toward restoring harmony in the business and at home.