Home Month and Year April 2021 The Delicate Balance

The Delicate Balance

Business vs. Personal


Sometimes the successful leaders of successful businesses are not quite so successful when it comes to one critical aspect of planning for the business’ future: a smooth and effective succession.

Of course, the reams of numbers-crunching are a key part of the process. But, according to Calgary succession planning experts, not as vital (and delicate, touchy and awkward) as the personal, emotional family part.

“There isn’t a family out there that doesn’t have some feelings of resentment or jealousy amongst its members,” notes the experienced Jim Rea, family enterprise advisor with MNP Calgary. “A skillful facilitator can help set the tone for open family discussions, providing a framework for dealing with sensitive issues and bringing intense discussions under control. As with all relationships, better communication leads to improved interactions.

“We often find that the heated arguments or shutting down witnessed in early family meetings is replaced by much more collaborative discussions and decision-making once the dust has settled and feelings have been shared.”

Effective succession planning acknowledges the reality that, while personal and family aspects are essential, it’s not easy. “Approximately 60 per cent of business transfers fail due to a breakdown of communication and trust, while 25 per cent fail due to inadequately trained successors,” explains Bill McLean, Canada family enterprises and business leader with PwC Canada. “Professionals with the skills and experience to support the continuity and succession planning process can help bridge the gaps that can cause the transition to de-rail.”

Rea underscores that, while most business owners are passionate about keeping the business in the family, they need to evaluate the suitability of family members for senior management positions. “Do they have the appropriate education, experience and drive to lead the teams and develop strategy? Every family business of a reasonable size should have a family employment policy, which guides the hiring and development of family members,” he says. “Such a policy provides transparency to non-family employees so that there is less resentment and frustration over family members seeming to get advantages not available to non-family members.”

According to Lynne Fisher, national team leader of EXITSMART at MNP, “True succession planning includes consideration and planning for the future of the business and its leadership. Who will be the owners of the business in the future and how will it impact the owner and the family – not only from the financial, legal and tax aspects, but also from the various personal and emotional aspects.

“Often, the more technical aspects of succession planning such as valuing the business, estate planning, and tax planning can’t proceed because the personal aspects have not been dealt with.”

One of the really tough calls, even for savvy business owners who have successfully dealt with their career share of business speedbumps, broadsides and crises, is objectively evaluating and determining the leadership transition of passing the torch.

“Many successful family-owned businesses recognize that key talent will come from both within and outside of the family,” McLean points out. “The business world continues to evolve rapidly. Non-family employees often bring an array of critical skills to the go-forward success of the business.” He suggests that key contributors (both family and non-family) should be considered within the overall continuity and succession planning efforts of the business.

Jim Rea emphasizes that trust in the successors’ abilities is paramount and best built up over time, rather than handing the baton and hoping for the best. “Ideally, the successor would take on increasing responsibilities with the owner supervising and eventually becoming confident that the business can run without their involvement.” From much experience consulting on all sizes of succession planning, he says the easiest business to transition or sell “is the one where the owner is able to take a two-month vacation and find everything humming along beautifully when they get back.”

McLean stresses that communication is key. No matter what stage of succession planning, he says it’s essential to the prosperity of the family enterprise to begin the discussion with the family as soon as possible. “Establishing a communication approach that encourages openness and sharing will form the foundation for the important discussions that lie ahead. Building a framework that contemplates all of the critical success factors for the plan and ensuring that this is clearly communicated across all participating family members, ends up assisting the family in managing the emotional realities of the transitions to come.”

Some succession planning experts point out that the various aspects of an effective succession are a bit like dominoes. Business is business. Personal is personal. Each is separate but impacts the others.

PwC Canada’s recent report shows that 70 per cent of private business owners are planning to sell or pass on their businesses in the coming years. There is also significant demand for mergers and acquisitions from domestic and international buyers and investors. And it all works out to a very complex consideration for succession planning both financially and personally.

In fact, a recent business survey by the American National Bureau of Economic Research Family Business Alliance found that 43 per cent of family-owned businesses don’t have a succession plan while three quarters do plan to pass ownership to the next generation. Other North American business surveys have shown that, whether it’s the cliched being too busy, putting out fires and managing crises (like the COVID and lockdown effects on business operations and bottom lines,) succession planning gets shuffled to the bottom of the deck and gets procrastinated.

“For some, it’s personal. Where the owner’s identity and purpose are attached to the business and they worry about filling the days and having a life which doesn’t include the title of ‘president and owner.’ For others, the day-to-day operation of the business is all consuming, especially in times like now, when so much is changing. Practically and realistically, they really don’t have time for future planning.

“Getting out of this cycle,” she adds, “requires a shift in thinking. From thinking day-to-day to building value.”

One frequent but resolvable sticking point on the personal side of succession planning is that “fair” doesn’t necessarily mean “equal.” Bill McLean explains that “Emotions and anxieties can run quite high. One critical aspect of a well-designed continuity and succession plan is to ensure as much clarity as possible with respect to both rights and responsibilities. Differentiating between matters that are specific to the family versus those that are specific to the business, often require expanded consideration and ensuring clarity of understanding across all involved.”

And despite how very complex planning for succession can get, experts caution about the pesky but crucial little detail called ‘legacy.’

“For some business owners, legacy is very much an issue,” Fisher admits. “Particularly those who have businesses which are third generation or older. There is a desire to be the one who keeps the family business intact for the next generation, and not be the one who breaks the chain. More commonly, the priority is stewardship. Owners want to ensure that whatever their succession plan works out to be, their employees, customers and the reputation of the business will continue to be taken care of and thrive.”

The experts caution that building a solid legacy and having an effective succession plan is vital but rarely ever cookiecutter. “Each business is unique and each family dynamic is unique,” McLean says. “Yet, more often than not, owners want the same things: what’s best for their business and what’s best for their family while creating a legacy they can pass on to future generations.”