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It Takes a Team

The most common sticking point for the family-business owner and his successors is driven by fear. Even though succession planning promises great financial returns and is the embodiment of a family legacy, it's nevertheless terrifying to many people. That's because succession planning is about change oh, and death. And, on top of that, many business owners simply dread discussing the future of a family

The most common sticking point for the family-business owner and his successors is driven by fear. Even though succession planning promises great financial returns and is the embodiment of a family legacy, it's nevertheless terrifying to many people. That's because succession planning is about change — oh, and death. And, on top of that, many business owners simply dread discussing the future of a family business for fear of stirring up family conflict over how the company will be owned.

But there are other fears, too. A founder fears that he will compromise his own identity if he lets go of control, and that he will risk the livelihoods of the many employees and their families who have come to depend on the company. He may fear that change will damage the company and result in a loss of jobs. Consider the results of a 1999 study of Canadian and U.S. family businesses by Deloitte & Touche:

  • 56 percent of current leaders of family-owned firms intended to retire within the next 10 years;
  • 75 percent say the business is dependent on them;
  • 73 percent never discussed the transfer of ownership with the next generation;
  • 37 percent lacked emergency plans in case of death; and
  • 35 percent wanted to keep the business in the family.

So, there you have it: You've got lots of business owners who want to retire but haven't broached the topic with their families. No wonder so many small business-owning clients seem to cancel appointments without much notice.


Businesses intended to remain family-owned after the death of the founder need planning that goes far beyond the orderly and tax-efficient transfer of ownership interests. For ownership transfers to succeed, owners and leaders of family firms also must work out how the business will continue to thrive under new leadership and new ownership, as well as how family relationships will endure.

In fact, the family-business succession plan “to do” list is a long one and almost guaranteed to raise the emotional temperatures both in and out of the business. Yet, unless a client is willing to face the many questions raised by succession planning, he may not go forward with the estate plan at all.

Some of those questions are: How will the senior generation obtain the liquidity needed to retire and attain independence from business-loan guarantees? Just how much is enough to retire on? How will the junior generation be able to secure financing to provide some or all of that retirement security? Are lifetime gifts of ownership interests appropriate? Who may be an owner: only family members who work in the business? Which owner will have what governance rights, such as voting rights to elect directors? Who may work in the business? If someone wants to exit business ownership or employment, how will that work? What will be the shareholder expectations of the board of directors after ownership has changed, and how will those expectations be communicated? Who can become an executive or even chief executive officer? Will there be a change in business strategy? How will that affect dividends? What processes may be put in place to make future change go more smoothly?

The estate plan must conform to decisions that come out of the answers to these questions. For example, in one case we know of, family-business consultants discovered that one business owner's estate plan directed that upon his death, his stock in the company would be put in a trust. The trustee of that trust was the owner's spouse. The owner's consultants pointed out that, because the spouse was not the parent of the owner's children, this was a recipe for tension — even disaster. The family and the owner, therefore, entered into a buy-sell agreement to keep the stock in the children's hands, while supplying liquidity to the trust that could then be invested to produce income for the surviving spouse. There was already life insurance in place that could be used to fund the buy-sell agreement.

A goal of that same owner, who had three other partners in the business, was to transfer half of his stock to his children by gift during his life, and to assure that the other half would pass to them upon his death. It took more than one year for him to decide on that particular goal, along with many others. At that time, the company was on the brink of a highly successful turnaround, an accomplishment attributable to a new strategy developed under the leadership of a new chief executive officer, who was also a family member. Before the turnaround jacked up the company's stock value, nonvoting shares were transferred to a grantor retained annuity trust (GRAT) that, at the end of its term, transferred slightly more than the owner's gift target with minimal gift-tax cost. Because the planning process already had produced the owner's commitment to make the gift, he didn't hesitate to create and fund the GRAT. And that was a good thing. He unexpectedly died within months of the GRAT's termination.

Planning and implementation occurred not in months, but years. Without the encouragement and facilitation of family-business consultants, neither the buy-sell agreement nor the stock gift would have occurred. In this instance, the professional advisors included family-business consultants, corporate executive staff, corporate counsel, estate-planning advisors, tax accountants and valuation experts. In other words, it took a multidisciplinary team.


The succession plan can be even trickier, since the financial advisor must act as the quarterback (checking his ego at the door) to get all the right people to cooperate — including the business owners, any outside shareholders, management and all family, as well as the CPAs and lawyers.

We think of succession planning in terms of a series of steps or tasks that the client family and the client business must complete to successfully transition a business from one generation to the next. (See “Mission Accomplished,” p. s10, for a partial, representative list of those steps or tasks.) But bear in mind that working through the list is never linear. While some items, such as identifying shared values, are completed relatively quickly, others, such as next generation career development, may take months, even years, to complete.

Two tasks bear special mention: structuring family councils and installing boards of directors. There will be many owners after succession occurs. Institution of a family council provides a means for becoming and staying educated about the business and establishing responsibilities and performance expectations; building on a unique legacy; exercising shareholder rights consistent with that legacy; and formulating shareholder expectations to communicate to the board.

The board of directors takes on a role in addition to the traditional roles of CEO succession and corporate oversight. The board of directors must establish trust with the shareholders through dialogue with the family council about shareholder expectations and then must manage those expectations.

Another key, as we have already mentioned, is to develop multidisciplinary teams — including professionals from other firms. No one person can reasonably claim competency in such a long list of services. (See “No One Does It All,” on this page, for a sampler of professional services that might be needed.) While all of us know a little or even a lot about some of these areas, none of us is fully competent in all of them. Said another way, perhaps more pointedly: It is malpractice in all the wealth-management disciplines to attempt to provide a service for which we do not have the skill, the training and, in some cases, the license, to do so. It is also a tradition, if not a mandate, in all these disciplines to “do no harm.” Particularly when working in an emotionally charged environment, we are all well-served to know the limits of our expertise and live by the maxim that we will open no wound we do not have the skill to close.


If everybody has done his or her jobs well, the final result for a successful family business transition will have:


  • Everyone is well-informed on critical business and family issues.
  • Stock ownership rights have been determined and policies established.
  • Employment policies have been formulated for entry of family members into the family business.
  • The family's business commitment has been defined and written, meaning:
    • The family's values have been cataloged and prioritized.
    • A current statement of the family's vision for the business has been drafted.
    • The family's business philosophy has been agreed upon and is current (that is to say, what the family members agree on regarding return on investment goals, risk tolerance, family involvement, measures of success).


  • What will the leader's life look like after relinquishing control of the company?
  • When will the current leader be prepared to release power and control?
  • What will be the owner's economic needs in retirement?


  • A board of directors (or board of advisors) is installed.
  • The board's composition, training and leadership have been established.
  • The duties and boundaries for board responsibilities have been set.


  • The successor leader's skill set has been defined.
  • The successor candidate(s) have been identified.
  • Training and/or mentoring plan for the successor is in place and functioning well.
  • Process for evaluating the successor has been determined and agreed upon.


  • Corporate vision and strategic plan (including an analysis of strengths, weaknesses, opportunities and threats) are complete and being implemented.
  • Tactical plans are complete and being implemented (including market analysis, budgets and project priorities).
  • Available, harvestable dollars have been determined and payout timeline projected.


  • Senior generation's economic need is within the company's ability to pay and a timeline has been agreed upon.
  • Senior generation's need is beyond the company's ability to pay.
  • Available options have been explored and negotiations have been completed; or
  • A new exit strategy has been identified.


  • Back-up wills and trusts have been drafted and signed.
  • Gifting plan has been defined and a timeline has been set.
  • Buy-out portion has been defined (if any) and documented.
  • Creditor/banker/supplier negotiations are complete (for example, new guarantor and/or new principal on company obligations).
  • Necessary implementing agreements have been drafted and signed; a partial list includes:
    • employment agreements;
    • consulting agreements;
    • insurance policies with owners and beneficiaries defined;
    • buy/sell or cross purchase agreement; and
    • retirement plans.


  • A timeline has been set and agreed upon.
  • Monitoring responsibility has been assigned and accepted.
  • Course correction mechanisms are in place.

Source: Glenn R. Ayers


It takes a village to help transition a family business well.

Experts are needed to render all these typical services, in the order dictated by need, to help a family business in transition:

  • Interview stakeholders, their families and assess interview data.
  • Facilitate family meetings.
  • Consult on communication and process.
  • Assess needs (of owners, family and business).
  • Conduct conflict resolution as needed.
  • Help family members articulate their shared values, vision and business mission.
  • Help clients formulate a family constitution.
  • Build a family council and coach family members on its use.
  • Develop next generation leadership.
  • Professionalize the board of directors.
  • Develop philanthropic vision, mission, strategy and structures.
  • Provide senior life/career coaching.
  • Quantify the economic needs of the retiring owner/founder.
  • Quantify the ability to pay the retiring owner/founder.
  • Create an estate plan.
  • Formulate a tax strategy, including calculations.
  • Articulate shareholders' rights.
  • Set up corporate governance.
  • Draft buy-sell agreements.
  • Draft employment agreements.
  • Formulate retirement plans.
  • Plan and execute a new entity creation.
  • Conduct business valuation.
  • Formulate and implement investment strategy.
  • Create an economic forecast for business.
  • Evaluate company performance.
  • Evaluate management performance.
  • Formulate and implement strategic business plan.
  • Formulate and implement tactical planning.
  • Articulate and enforce management best practices.
  • Evaluate and coach next generation(s) on their careers.
  • Educate and train all stakeholders in all areas. relating to these services.

Source: Michael J. Jones

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