Features Business and Operations
Business Advisor: December 2012

Leaving a business to the next generation of your family

Leaving a business to the next generation of your family.

It may take time and training before your successor is able to assume your role.

Glen, the founder of a successful business, found himself at age 55 starting to think more often about the legacy of his business. He has two sons involved in the business, but he’s not convinced that either of them, at this point, is a strong enough leader to take over the reins.

Although Glen does not plan on retiring until age 65, he wants to begin the succession planning process. He realizes that he is at an important juncture in the life cycle of his business. He wants his sons to succeed in the business. He does not wish to sell the business, as it’s his legacy to his sons.

Each of his sons leads an important division: one is in charge of sales and the other is responsible for operations. Both sons started in the business after completing university undergraduate degrees. Glen is realistic about his sons’ limitations and wants to implement an appropriate strategy for keeping the business under family control.

Glen may need to retain an advisor to assist with a succession plan, particularly when family members are involved and objective views are needed. There are numerous issues that will need to be addressed, including:

1. Where does Glen see the business in five and 10 years? What management talent will be needed? Does the business have a strategic plan? What key positions are needed and what experience and skill sets are required for these roles?
2. Does Glen believe that, with adequate time and training, one of his sons will be capable of assuming his role? Why should this son run the company – does he have the requisite skills, experience and performance? What will be the effect of this decision on the other son, and potentially on other family members, company management, employees, customers and suppliers? Are there younger family members who are considering joining the business?
3. How will compensation be determined for both family and non-family executives?
4. How will share ownership issues be dealt with? What may be the repercussions of these decisions on family members who do not work in the business? How will conflict be dealt with?
5. Will Glen’s shares be bought out? If so, by whom? How will Glen ensure that he has available funds for retirement?
6. If non-family executive management is required, will investment in the company by non-family members be accepted?
7. What steps can be taken to ensure that non-family executives remain engaged?
8. What contingency plans could be put in place in the event of resignations, incapacity or death of owners?

Given that Glen has 10 more years until retirement, it may be prudent to institute formal training for his two sons. This may include one or both of them enrolling in an MBA program, Glen hiring an interim manager to help them, or, perhaps Glen spending more time to groom his incumbent.

The future leadership of the business is clearly one of the key cornerstones of the plan.  In Jim Collins’s book, Good To Great, he states, “The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.”

Collins argues that getting the right people on the team takes priority over vision and strategy decisions. His research uncovered three practical disciplines for being rigorous in people decisions:

1. When in doubt, don’t hire – keep looking. A company should limit its growth based on its ability to attract enough of the right people.
2. When you know you need to make a people change, act. First be sure you don’t simply have someone in the wrong seat.
3. Put your best people on your biggest opportunities, not your biggest problems. If you sell off your problems, don’t sell off your best people.

These steps will ensure that the right talent is in place so that the business has a strong foundation for the transition and legacy of Glen’s business.

Bruce Roher is a partner responsible for succession planning and business valuations at the Toronto office of Fuller Landau LLP, Chartered Accountants. He can be reached at broher@fullerlandau.com or at 416-645-6526.