Family Business Transition – Who Gets the Baton?

Family business transition planning is frequently predicated on the assumption that someday the parents will be passing on the baton to one (or several) of their own children. What more satisfactory way of crowning their lifelong efforts and hard won success than to pass on the legacy to their own kin so they too can continue to enjoy and prosper from it.

However, children are never clones of a parent and generations also vary one from another. Changes in educational opportunity, in affluence, and especially in technology have created a different life style and set of expectations among generations from that of the business’ founder. This may translate as a lack of any particular commitment to or passion for the family business or a desire to take a different career path altogether.

Before attempting to develop a business transition plan based on passing it to the next generation you must ask yourself this key question: do the proposed successors have the necessary commitment and passion for the business that will see them through the long hours and tough times that are part of managing and growing a business?
Where there is absolutely no interest in the business demonstrated by the next generation, then, blasphemous as it may sound to the senior generation, selling it to a third party could well be the best decision – for the business and the heirs.

If you are still some way from a transition point, there may be time to develop a grooming program for candidate successors, including working up through the company to establish their knowledge of operations and their credentials with employees and customers, management training and so on. This provides you with the opportunity to evaluate their aptitude, reason for commitment, and level of passion.

Creating a family council opens up a formal forum for discussing succession planning openly and assessing the real wishes and passion of potential heirs to the business. If a child doesn’t want a role in the family business, it is better to arrange an alternative transition strategy that recognizes the fact. This may not necessarily involve selling to a third party though. It may be possible to hedge bets by bringing in external managers or transferring ownership to a trust to delay the need for a decision, at least for a period.