Spring/Summer 2015 | BWD 17
As leadership candidates progress and enter the
4. Get the lead generation ready
management stage of their careers, they should gradually
It can be difficult for parents or other senior family members who
have been intimately involved in the business for decades to make
way for the younger generation to take the leadership reins. There
are multiple ways to transition:
be involved in governance. Many companies begin,
for example, by inviting family members to board or
management meetings as observers.
1. Establish policies
Children often work in the family business without the necessary
job skills or experience, or wind up in the business by default. This
can create tension with employees who may have invested years of
hard work in the business. To avoid this situation, and to set the
next generation up for success, it’s critical to establish and clearly
communicate policies to children and other family members. These
policies should detail the level of education, training, skills and other
characteristics required to enter the business and rise through the
leadership ranks. For example, a policy may require or encourage
potential leaders to obtain degrees in engineering or supply chain
management, or to work for another company in the industry for a few
years to gain different ideas and perspectives.
New employees should also be provided with individual development
plans (IDPs) as they join the business. These plans:
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Set roles in the business
Establish objectives
Outline their development paths
Describe the training and educational processes that will
prepare them to be future leaders
Education and training include a variety of learning experiences, such
as job rotation, outside classes, on-the-job training and coaching.
As leadership candidates progress, their IDPs should be revised
depending on their strengths and weaknesses.
2. Develop a strong governance structure
This will help ensure that the business is managed by those bestsuited for the job, that family members’ compensation and other
employment terms are reasonable, and accountability is consistent.
Independent boards of directors, or several independent directors
on the board, may provide objective voices and new perspectives,
resolve intra-family conflicts, approve insider transactions, and ensure
that all employees are treated fairly. An advisory board often brings
independent thinking.
3. Involve family members in governance
A parallel focus on family and business interests is often the most
effective strategy. Family-first and business-first philosophies of
governance may be equally important. A family council may be
another vehicle to involve family, establish policies, and guide
decisions and actions. As leadership candidates progress and enter the
management stage of their careers, they should gradually be involved
in governance. Many companies begin, for example, by inviting family
members to board or management meetings as observers.
• Current leaders can take more vacations or spend time
away so the new generation of leaders can “test drive” the
business. This way, the current leaders can monitor the
business and gradually increase the younger generation’s
day-to-day responsibilities.
• Individuals can be moved into new positions with an
assigned mentor.
• Senior members can provide consulting services during a
gradual transition, providing input and oversight without
day-to-day involvement in operations.
5. Talk about money
There may be different expectations about ownership succession
and the role the family business will play in financial futures. It’s
important to have open, ongoing dialogue with family members.
• Children may expect to inherit the business, and are
unaware of the extent to which their parents depend on
the income it generates.
• Senior members may rely on their equity in the business
to fund their retirement.
Transition options, including gifting and sale to the younger
generation or to a third party, should be considered. Compensation
and benefit policies provide consistency and fairness to all
individuals.
Start planning now
Planning now will give you control over the timing and the manner
in which changes happen.
A valuable tool for guiding the conversation is the questionnaire,
“12 Common Sense Questions to Protect Your Wealth,” developed
by Tom Deans from his book, Every Family’s Business. Completing
the questionnaire and discussing the results with your advisors
can be a great way to gauge expectations and develop strategies
to ensure those expectations are met. You can find a copy of the
questionnaire at rehmann.com/transition.