This article are provided for information purposes only, and are not intended as legal advice.


Succession – did I make the right plan?

February 16th, 2009

When you have a family business and several children you have to decide which child or children will be the heir apparent or do you go outside the business to bring in a professional manager?  Remember, often, the first generation makes the business, the second sometimes improves it, the third generation often destroys the company and if they do not do this, the fourth will often make sure the company is dead.

 

This probably comes down to worth ethics.  The first generation often came from nothing and knew what hard work was all about.  The children were pampered and they were handed everything.  They often do not know what poverty is and they do not have the same hard work values that their parents had.  The third generation did not have to work to get a position in the company and have been provided with every luxury available, they do not have the same values as the grandparents who struggled to get the business going.

Often succession choices run into problems. In a recent case, a father worked closely with one child who was designated heir apparent. The father ruled with an iron hand but the one son was the token President.  As time when on, the President got more responsibilities but the other siblings were left out of key management, left to run one of the facilities but did not know how to run the entire business. Some of the siblings were never involved in the business and one left the business.  Tragically, the President died at a young age and no sibling knew enough of the operations of the company to continue in his place.  As a result, the business which the father had hoped was going to be passed on through the generations was put up for sale. 

 

As often happens, the nomination of one child may alienate other family members and in event of a tragic unforeseen event, none of the other alienated children want to come to the family’s rescue.  Remember to treat all children fairly. What goes around comes around,  This happened in this case: the family was forced to sell the business unexpectedly. 

 

When there is no one to drive the business, such as this case, the company may flounder for months until it is sold and the company in all likelihood will be worth less today than if the company was sold while it had strong leadership.  In this particular company, the father and the son ran the business and there was no other management to take over the operations.  This succession planning did not work.


Filed under: Succession — Gary Landa @ 12:46 pm


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