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Greg Ast
Greg Ast is president of Legasus Group (www.LegasusGroup.com), a family business consulting firm offering services designed to enhance clients' growth, success and profitability. Legasus Group has a staff of trained professionals - specialists in management, family-owned businesses, strategic planning, profit enhancement, finance, international business and executive development that work with family-owned and privately-held businesses. You may contact Greg at (316) 681-0444 or by e-mail at gast@legasusgroup.com.
Business Consulting
2002-04-01 16:17:00
Family businesses
Question:  What are the most important issues to consider in managing succession for a family business?
Answer:  This is a critical question for family businesses to address.  The answer depends, of course, on the situation.  For example, the easiest transition is usually from one 100% owner to another 100% owner (i.e. daughter or son).  This type of transition has the easier financial, legal, and even emotional aspects to it.  But today, most family businesses are transitioning to multiple siblings or family branches.  The more important issues to consider in all transitions (even for privately held companies) would be as follows:Financial Security - Are the retiring owners financially independent, or will they become financially secure in the process of transition?  It is very difficult, if not impossible, for an owner to pass the leadership baton (in other words, power and control) if he or she still relies on the business for significant financial returns or income.  Just wait until tough times to see who takes control!"What's Next" Planning - The other question for the retiring generation to answer is "What do I do next?"  Playing golf and travelling is not the usual answer to this question.  It rather involves better defining the role of Chairman, the community contributions they can make, or even the company contributions they can make, within defined parameters (i.e. key customer contact, R&D, etc.).Leadership Development and/or Selection - At least two years before transition, a process should be put into place to select and develop the future leadership of the business.  This includes not just the president, but also senior managers that will need to be developed.  Many family businesses are now considering a non-family leader as the interim or permanent president of the company.Partnership Guidelines - If multiple siblings or family members will be owners, they need to reach agreement on critical ownership issues.  The earlier these issues are discussed and guidelines established, the more likely it is they'll avoid problems.  Issues might include:  commitment to future ownership, shared business vision, exit or liquidity strategies, requirements for entry into the business, employment prerequisites, rights and responsibilities as owners, perks, etc.Ownership Planning - The actual ownership transition needs to be carefully planned and executed.   Owners should think through issues such as the following:  (1) Will stock be sold or gifted? (2) Will family members own stock equally? (3) Will there be different classes of stock? (4) Can spouses own stock? (5) What happens to stock if owners die or get divorced? (6) Is there a buy/sell in place? (7) Are there funding mechanisms in place?Communication - Families in business face many challenges and the strength of their communication is critical.  There will be differences and disagreements.  The key is to establish appropriate forums for communication and continued development of communication skills.  Family members should conduct family meetings to discuss individual desires and interests and address family conflicts.  These discussions should not take place in the management meeting, or the middle of the manufacturing floor.  Business issues should be the focus of regular management meetings.  A good board of directors or advisory board can also be an invaluable structure for facilitating dialogue on key ownership and business issues.The important thing for all families in business is to take a holistic approach to the issues and requirements of a successful transition process.  Just completing estate-planning documents does not address all the issues for stewardship of the business assets to the next generation.  Of course, even the best intentions will also be fruitless if the legal and financial planning is not executed as agreed.  Many owners in their 80's are still waiting for some point in the future to address these issues.  As in many endeavors, the earlier you start planning, the greater your odds of success.  Good Luck!
 
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