The emotional impact of business transition decisions
Handing over your business can be harder than you thought – but not for the reasons you thought it would be. Facts and figures are the easy part, but how do you ensure that your business, family members and business partners will thrive from a relational perspective once you’re gone?
Gregg Becker, President of Predictable Futures Inc. has been leading best-in-class company transitions for private enterprise for over a decade, and holds an Advanced Certification in Family Business Advising.
At Predictable Futures Inc., you say that you ask, smart – sometimes difficult – questions. What’s a difficult question that people need to ask themselves when preparing their family business transition plan?
The first thing people should ask themselves tends to also be the last thing they want to think about – handing off control. This is a complex and sensitive question – and it’s crucial to answer it well. There are two categories that need to be covered when considering the transition of control: leadership and ownership.
First, you need to figure out the who, when and how of leadership transition. Basically, who will be the new you? It may be more than one person, and if so, you’ll need to clearly define how the responsibilities will be spread. The more people you add, the more complex your plan will need to be. Business and relational success upon a healthy transition of control, and thoughtful timing.
Next, who’s going to control ownership? How will transition in this sphere shift? When? Ownership control is typically represented by shareholders, directors, etc. This group makes decisions about shareholding, voting, dividends, and things of that nature. In many business transitions, this is where most of the focus is put, and it is often viewed largely as a transaction.
Handing over control isn’t easy for a lot of business owners. Sometimes, it makes sense to do that incrementally, and other times a quick change is the better solution.
What’s a problem that you solve for clients before it’s even on their radar?
In the case of transitioning a family business, people often don’t talk about the terms and conditions under which they’re employed. This is an issue we bring to the forefront by having business families write out their rules of engagement. We get them to establish rules around hiring, dismissal, compensation, reporting and career development for example. How will the children be compensated in comparison to employees who are not family related – and to each other?
In the case where kids do different jobs and have different responsibilities, how will their performance be evaluated? Are owners also evaluated the same way? By creating a Family Employee Policy, we define the rules of engagement in the business for family members, which increases predictability, consistency and reduces the risk of conflict later.
For example, we had a client who was transitioning their landscaping business to two daughters. One daughter played a key role in the business and a vehicle was purchased for her day-to-day duties. The other daughter’s responsibilities were significantly lighter and more administrative in nature, but she felt that it would be fair to provide her with a new vehicle as well. In this situation, the second daughter was blurring the lines between family and work.
How do you work with family members when they disagree with a decision that’s been made in the plan?
People generally tend to be respectful when we come together with the family to discuss the transition plan. One way that we diffuse possible friction in advance is to meet individually with each family member before coming together. This helps us anticipate areas of contention that might come up, and have solutions in place to manage them.
Generally, families know each other well and there are no surprises about how people will respond or where they might be misaligned. They’ve just never had the opportunity to come together and discuss those issues in a safe place with the help of a neutral third party, and are usually grateful to be able to do so.
To help keep the family aligned in their transition planning, we begin by creating a family Code of Conduct. We also ask, “What are the Family Values?” These might include things like peace, harmony and loyalty. By using these tools as our guide, we can refer to them if discussions get heated. We can ask, is this behaviour or solution aligned to our Value of harmony? And if it isn’t, then we can figure out what a harmonious plan looks like.
In one case, a family member actually called the family out on one of the core values and said, “We don’t do that!” Everyone laughed because they knew it was true. But that’s okay, values can be aspirational too…they can be things the family would like to work on.
What’s a common mistake people make in their business transition plan, and what should they do instead?
People tend to make a lot of untested assumptions about things, like timing and how things will go, because they don’t have all the information at the beginning. This is where creating a clear Plan B scenario is invaluable. Figure out what you’ll do if things don’t go the way you hope or anticipate. For instance, if your kids say they’re going to take over the business but then change their minds. Or maybe the wealth isn’t what you thought it would be due to circumstances that were outside of your control.
This is where starting your transition plan early can be invaluable. People who start late are scrambling to get a plan in place at all, and don’t have time to consider alternative scenarios and what they might do in those cases.
In an episode of CWB Wealth Management’s What They Don’t Tell You video/podcast, you mention that people often won’t reveal the deep emotional issues that keep them up at night for fear of appearing vulnerable or incompetent. What is a common fear that people have, and how do you help them solve this?
Poor financial outcomes are rarely a concern. Successful business owners know how to set up the business for success after their departure. What them up at night more is not knowing how their decisions will affect their family members or partners personally and emotionally. Will the family be happy with the decisions that have been made, and be able to handle things? Owners worry that they’ll be blamed if things don’t go well after the transition. Sometimes, it can cause marital discord if their spouse disagrees with their decisions, and this could have a lasting impact on that relationship.
We reassure people by working through various scenarios so that they can feel confident about their decisions. And by discussing issues with the involved family members and key players, we can get buy in, which alleviates some of the weight tied to transition-related decisions.
What did you learn in setting up your own business succession plan?
We had to have the same difficult conversations that we walk through with our clients. People’s identities can get caught up in their roles, and this can make decisions challenging. In that regard, it was a great exercise to fully understand all the emotions our clients go through by going through it ourselves.
People are smart – they’re running a business and making important decisions every day. They need to come to their own conclusions about what’s best for them, their family and their business. What’s sometimes overlooked is that the emotional and relational impacts of business transition decisions are just as important as the financial impact. Working through these issues, and giving yourself enough time to do that, removes a huge weight from business owners and sets them up for greater success.
Lucy Conte, Content Manager
CWB Wealth Management