Managing Soft Issues inFamily Business Succession Keys to the Successful Transfer of Family Values and Wealth
Why do otherwise astute ownersignore business succession?• They never planned for the business to be what it has grown to today• They aren’t wired to quit working• There are too many thorny family issues better left alone
What do founders worry about?• Will wealth help or hurt heirs?• Will wealth help or hurt family relationships?• Will transfer help or hurt the business?
What worries parents aboutwealth transfer to their children?Too much emphasis on money 60%Naïve about money 55%Spend too much money 52%Initiative will be ruined by money 50%Won’t take financial responsibility 42%Resented because of money 36%Will marry someone who wants $ 34%Feel they will fail in the business 18%
Wealth Transfers Today• 7.2 million people control 33% of the world’s wealth (1 million investable dollars)• Fed estimates 56 trillion dollars will change hands in the next 50 years in the U.S. alone (greatest transfer of wealth in history)
How Successful is WealthTransfer?• M.I.T. and the Economist both report a 70% failure rate in business transfer worldwide regardless of country or industry• “Wealth never survives three generations” –Chinese parable• “Riches seldom remain in the same family for long” -Adam Smith
Possible Causes of SuccessionFailure• Taxation• Skill of advisory team• Size/complexity of the estate• Unexpected health issues or death• Regional catastrophes• Economics of the region• Changes in government
What are the Actual Causes ofFailure?• Inadequately Prepared Heirs 25%• Lack of Mission 12%• Advisor Error 3% – Taxation Issues – Poor legal planning – Other
What are the Actual Causes ofFailure?Breakdown of communication and trust 60% • Reliability – do family members do what they say they will do? • Sincerity – do family members mean what they say, or do they try to manipulate and control? • Competence – do family members have the skills necessary to accomplish the job at hand? • Must have all 3 for trust to exist
What are the Actual Causes ofFailure?Transfer Fails Due to Lack of Communication!• Heirs should be included in all information• Heirs should be able to speak openly, honestly and freely• Founders should not dominate decisions and meetings
Keys to Successful TransferFamily Meetings1. The entire involved family group participates in discussions around major decisions.2. Heirs understand their roles, buy into them and are preparing to fill them3. Meetings are not founder-dominated4. The family grows in the areas of communication, openness, trust, accountability, team consensus building, developing vision and unity
Keys to Successful Transfer:Family Policy Manual1. How will fairness issues be handled? -perq’s (vacation time, expenses etc)1. What is the method for dispute mediation/resolution?2. What is the mood/health of the family? Are relationships just as important as the business?
Keys to Successful Transfer:Education1. What is the difference between ownership and management?2. What unique temperament strengths and weaknesses do I bring to the business?3. How do we treat each person with fairness (but not necessarily equality)
Keys to successful transfer: Digyour well before you’re thirsty1. Transfer plans should begin 10 years before the current owner wants a change in business involvement2. The family should work on these things before crisis forces them to3. Maintaining health is much more effective than last-ditch rescue efforts