Once upon a succession plan 

​In my work as a family enterprise advisor, one of the most common and most complex issues I routinely encounter is the collapse of distinction between the family and the business. It’s not necessarily a surprising issue—by and large, the people involved all know each other intimately and well and, to a large extent, it’s only natural that their expectations of one another in one area of their lives might sometimes cross over into other areas.

Unfortunately, this all too often leads to tension, friction and worse. Many of the decisions we make about our lives and about our businesses or our wealth are bound to impact others—and not always to their preferences or advantage. This is especially true in cases of succession when the time has come for management of the business or the wealth—if not the family—to change hands. But to whose hands should it change? Why? And how?

Consider a common fairytale trope: the king or queen has three children and has to send them off on quests to see if they’re worthy to carry on the legacy. The eldest child is sent off first, into the Eastern sunrise, but fails to complete the task. The second is sent next and also returns empty-handed. The third child (sometimes ridiculed because they are still “just a child”) is sent off in an act of semi-desperation, and somehow manages to return with the golden goose. Does that mean the crown is theirs by right? It’s a difficult question—and let’s be clear: even for a fairytale, more information is needed.

Second act
The fairytale that interests me most is one in which the sun rises in the West. Out here (I’m based in Edmonton), a great deal of wealth has been built up just in the past five or so decades, a lot of it from the intense growth of the business itself or selling some or all of the business. These entrepreneurial kings and queens did their duty and their due diligence, fought their battles and slew their dragons so well that the liquidity they’ve amassed is often not needed to reinvest in the business—resulting in family assets expanding well beyond the business. Or, alternatively, the business was sold, converting net worth from an operating company to cash held in holding companies.

Now the next generation has gone out on their quests, leaving the kings and queens behind. Will they live happily ever after? Hard to say. Why? Because the core business of the kingdom is no longer the king’s and queen’s to manage, the staff no longer at their command. Put another way the, the corporate CFO can no longer assist the king and queen either due to lack of capacity to also manage the family wealth, or because they followed the buyer of the business. As the king and queen are left without a Royal Court, they worry what to do with the complexity of their own assets and holdings. Who will take care of the royal greyhounds after the king and queen have passed? How will they manage it all now, without stress, and with confidence that the success they built will support their family for many years or generations to come?

These, too, are difficult questions. And here’s the rub: according to distinguished family enterprise researcher John Ward, seventy percent of family businesses last only one generation, with 30 per cent making it through the second generation and 13 per cent through the third. Only 3 per cent of family businesses survive to the fourth generation and beyond. Meanwhile, researchers Williams & Presser have shown that fully 60 per cent fail due to breakdown of communication and trust within the family, 25 per cent because heirs are unprepared for the required roles and accountability and 15 per cent are all other causes—market factors, lack of financing, Rumpelstiltskin, and so on.

What stands out to me in this breakdown is the need to work on communication and to intentionally plan for the transition of skills, knowledge and institutional capital, both to transition an active business and to transfer stewardship of wealth outside the business. Intentionality is, in fact, everything. While it may sound a little fanciful, developing a strong culture of “intentional communication” not only allows a family business to make a successful transition of wealth from one generation to the next but also allows generational wealth to be supported by a larger family office that survives the test of time.

Role call
Intentional communication is about having forums and creating space for deliberate discussion:

• Family issues at a forum for family
• Business and wealth issues at a forum for business and wealth
• Ownership issues at a forum for owners.

In some cases, participants might actually be the same people—but they are wearing different hats and peering into different crystal balls. The bottom line is that agendas should not be mixed. Once the right people are in the right forums, the right decisions can be made.

Frequently, those forums are best overseen by the royal (family) enterprise advisor, who will ask any number of critical questions, such as:

1. How can the family be wealthy together? Are there forums that will support education, sharing information and making decisions?
2. What skills do your children and grandchildren need to develop to be good stewards of the wealth?
3. How will you manage the day-to-day accounting and tax compliance that comes with complex wealth? Who is the family CFO?
4. How will you map out your giving, philanthropy and impact journey?

Life, to be sure, isn’t a fairytale, and wishing doesn’t make it so. The same is true of business and wealth. We can love our families to the end of time, but love doesn’t pay the bills, house and clothe the staff, and ensure a viable future—for the business or the family. What does is sound judgment, sometimes with the assumption and management of a little risk, and a commitment to making decisions on the basis of clear and intentional information and objectives. That is the surest way to a happily ever after.