How to Pass Down a Family Business

Expecting to inherit and run your family’s business exactly like Mom and Dad did? Each new generation of leadership has different skills and interests. Business contexts shift. Maybe you should step back and consider the CEO’s job description, the governance of the business and the evolving business context — or you might be setting yourself up to fail.

Sequel fallacy is a name that evokes Hollywood and its penchant for sequels. Ever since the 1910s, movie sequels have been a common cost-saving measure; they let studios reuse sets, costumes and props. Sequels are still big business in Hollywood. The audience has a sense of comfort and familiarity with the concept, often leading to successful box office numbers.

Family business sequels have similar traits: ownership structures, role descriptions and decision-making processes can be reused — right? What worked for the senior generation should work for you. But are you considering your co-owning siblings?

Your relationship can devolve into infighting, business losses and even lawsuits. Families can break up, reputations can be lost and the business could fail. Instead, involve other people with different interests, relationships and aspirations. Operate the business with a different ownership context and culture.

You may need to reinvent, revisit and/or refresh the firm’s ownership and leadership models. Here are five steps to take before making succession decisions:

  • Articulate changing dynamics. Your family has grown, and the extended family has grown up with different experiences. Individuals have a wider set of interests, expectations and behaviors.
    • Seek to understand the changing players and dynamics. In the meantime, don’t undercut your credibility with the rest of the company by neglecting your employees.
    • Analyze changes from the last transition period in order to have a better context for what’s needed in the future.
    • Have discussions with your family and the business’ owners to explore how these differences might affect the future.
  • Look outside the company for advice. Talk to other business families. How have they managed their transition process? Get insights on and reasons why they chose their path to shed light on your own challenges and decisions.
    • Whose expertise did they seek?
    • How did they build alignment between current and future generations?
      • Be open to new perspectives that you might not have considered.
      • Seeing examples can give you courage to break with tradition.
  • Be open-minded. Talk about what can be done. Stay true to your past while embracing new ideas.
    • Chart a better path forward by removing preconceptions that no longer apply. Tradition can guide you, but don’t let it be the primary reason for continuing down the succession path.
  • Don’t commit to succession decisions too early. It could lead to undue pressure on successors and alienate talented family members. A plan can evolve over time as managers react to new information; the course can be corrected. Continue to ask, “Do we have the right people in the right places, working well together to make the right decisions with the right information for our ownership and family?” Perhaps you can give each sibling a domain to run and be responsible for.
  • Talk openly about the future. See succession planning as a process.
    • What worked well? What was challenging?
    • Share aspirations and views on what an ideal future would look like.
    • Acknowledge traditions but talk about innovation.
    • Delegate some decisions to an independent board.
    • Require significant decisions to be approved by a majority of co-owners.
      • Give younger family members the freedom to experiment with their own projects.

Provide the next generation with a road map to eventually transition to their own children. In keeping with the movie analogy, think about the Marvel Cinematic Universe and how well it has fared in evolving characters, superhero talents and challenges. You can do the same with your family: Assume the role of director and create a future in which each family character can survive and thrive for generations to come. Celebrate and support one another to foster dedication and success.

You can count on Ericson, Scalise & Mangan, PC to provide you with sound guidance and experience in these uncertain times. For assistance with your legal needs, please contact us today at (860) 229-0369, or email us at info@esmlaw.com.