Business and Family Communications

Communication Needed to Make Family Succession a Success

Published: 2008 04 12 | Views: 1743

Picture a highly successful family-owned Canadian business. The owner, a man in his 70s, should be at the point when he can retire and hand off the company to the next generation.

But he just can’t let go. Or,  perhaps more accurately, he won’t let go because he doesn’t consider his two children—both of whom are working in the company—to be ready to take over.

To make matters more complicated, his son,  the elder child, thinks he’s the heir apparent to run the business. The father disagrees. He thinks his younger daughter should take over.

That decision has the potential to become a big problem for the business and for the family. So, of course, no one is talking about it. The father has never shared his opinion with his children, so the son has been working in the company for 20 years under the false impression that one day he’ll be in charge.

That, unfortunately, is a typical scenario in family-owned companies.

“It can get very complicated,” says Ron Prehogan, president of Ottawa-based Equitas Consultants, which specializes in succession planning for family business. “There are sibling rivalries. There are kids fighting for the reins. There are all these jealousies. And there are a lot of dads who look at the next generation and lament that their kids don’t have the same work ethic that they did.” And since more than 80 per cent of North American businesses are family-owned, this scenario and others like it are being played out regularly across the continent. According to one study, only 30 per cent of family businesses make a successful transition from the first generation to the second.

Equitas works with all members of the family on a succession plan that is developed and implemented over a long period of time. The process of building the plan requires a lot of sensitivity and recognition of generational gaps or different expectations of parents and children.
“Dysfunctions set in over the course of decades or generations,” says Prehogan. “To expect that to change over the course of a few weeks or a few months is unrealistic.

“We all get into the patterns of behaviour we have with each other in families. It’s pretty hard to pass on a business from father to son if they don’t know how to talk to each other.” The typical issues that arise in a family business are the same as those that pop up in families: Lack of effective communication, generational gaps in understanding, and the weight of expectations being played out in both directions. With a business involved, those issues are magnified, creating the potential for strife, anxiety and even major conflict.

“Think of a guy that starts up a business and he’s been working at it all his life and he’s done a phenomenal job getting it to a certain point,” says Prehogan. “And he brings his kids in along the way and they’re basically continuing to pursue his dream.

“They might find themselves going on for decades working in the business. But they’re still pursuing dad’s dream. In order for there to be a successful transition, they have to pursue their own dream.” That doesn’t mean they need to work somewhere else or start their own business, says Prehogan.

It just means they need the latitude to conceive of how to take the family business in their own directions.

“I see in a lot of cases where kids in their 40s and 50s are really still employees of the business,” says Prehogan.

“They’re working for dad. You can’t have a business that continues to grow as long as the children have that mentality.

“It’s the difference between an employee mentality and an owner mentality.

“I worked with one company recently where the dad sold the business because he really didn’t see that he had an alternative. His son was working in the business but dad didn’t see him as being more than an employee.” In the first example, the case of the father who didn’t want to let go,  Prehogan says that after a long facilitation process, the son accepted that he would not be taking over the company. A succession plan is now in place that includes training and an advisory board to support the daughter, who will take over when her father retires.

Also a partner in Ottawa law firm Brazeau Seller, Prehogan launched Equitas two years ago because he saw a number of family-business clients who didn’t address the issues until it was too late.

“People go to lawyers when they’re in trouble, when it’s too late,” he says. “We charge handsome fees to divide up the spoils.

“I saw the significant limitations of the service that we provide to family business. And I didn’t find that particularly satisfying.” Prehogan says it came at a time in his own life when he was looking for something more meaningful from his own work.

“I didn’t go out and buy a sports car,” he says. “I did this instead.”

© The Ottawa Citizen 2008
Written By Mark Sutcliffe
April 12, 2008

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