In times as turbulent as these, it is understandable that you’ve been putting off any sort of conversation that might further rock the boat. After all, with politics at their divisive worst, civil unrest peaking, and the Covid-19 pandemic threatening to accelerate into autumn, the last thing anyone needs is more stress. Luckily, conversations about succession don’t need to be a source of conflict if you plan carefully. This is good news because the current circumstances are not disappearing anytime soon. On August 22 the World Health Organization (WHO) reported that, if we’re lucky, the pandemic will be over in two years.
Like all sensitive subjects, successfully passing on the family business depends on good communication. Working with your children to articulate common goals and outlining the steps required for reaching them is crucial. If in talking such things through, you sense deeper issues, don’t hesitate to seek outside help. With clear channels of communication open, the following five steps can be approached with ease.
1. Successors start at the bottom.
Successful CEOs understand all aspects of their business. This knowledge cannot be taught; it can only be gained through experience. Unless you want the family business to end with you, don’t hand over the reins of power until your child is sufficiently prepared to handle them.
2. Compensation follows market norms.
Don’t overpay your kids. The fact that you are setting them up to inherit the family business is privilege enough. What’s more, successful leaders must understand market forces, and the best way to teach this is through direct experience. Likewise, ensure titles, prerequisites, and opportunities are gained through the normal channels.
3. Have children work under an outside executive.
Where possible, great value exists in having a child gain experience working for someone outside the immediate family. After all, successful successors require mentorship and this is best provided when separate from the parent-child relationship.
4. State your priorities.
All family businesses must choose to center either performance or relationships, but not both. If performance is the priority, anticipate greater family distance; if it’s relationships that matter most, be prepared to suffer performance losses. Neither need be catastrophic but knowing what’s coming will help in mitigating conflict.
5. Don’t delay on retirement planning.
Of utmost importance in succession planning is working out how both management and ownership will be passed on. The first requires playing the long game and beginning to plan five years out. Expectations about a parent’s continued involvement should be mutually established and respected no matter how stir-crazy one might become in retirement.
The second, the transition of ownership, is an aspect best organized in consultation with an estate planning attorney. A range of mechanisms exists to smooth the transition from one generation to the next, including strategic use of trusts and clear-minded advice on how to fairly distribute assets where multiple children wish to have varying degrees of involvement in family affairs.
Covid-19 is not going anywhere anytime soon and there could hardly be a better time than amid a pandemic to ensure your assets are secure and a plan is in place should the worst come to pass. No matter how inconvenient the conversation may seem, there truly is no better time than right now to get started.