Business owners are faced with the transition decision at least once in their lives, either proactively or reactively. This decision involves the gradual transfer of a) shares b) day-to-day and strategic decision-making and c) overall control of the organization. In reactive situations, there is an unexpected illness or death in the family or other economic / market factors driving the decision. In proactive situations, the owners have a picture and a plan on “what’s next” both for their business and for themselves.
The Current State of Transition Planning in Canada
A recent Globe and Mail article outlined the importance of planning early when it comes to passing a business down to the next generation, if that is the desired path. The article indicated that at least half of businesses in Canada don’t have a succession plan, according to a CFIB study. This is not very shocking as we have heard these stats before. What is very alarming however, is that businesses along with their trusted advisors are not moving the needle of this statistic. Why not? This has really raised my curiosity levels and will be the focus of a three-part blog to unpack this further, starting with this one.
Benefits of EARLY Transition Planning
It is very clear in my experience working in family businesses and now as an advisor to these businesses, that there are tremendous benefits in creating a plan early. Early could mean anywhere from 2-3 years or up to 10 years before an actual transition is desired. Such benefits as; maximizing family wealth transfer, improving important relationships (family, employee, client and supplier) and improving the odds of having a sustaining organization post-transfer. These are all highly desirable outcomes and you would expect many to jump ahead and initiate, at least a draft “rough first-cut” transition plan.
So, why doesn’t the planning happen early enough?
I started thinking about the family businesses I have been involved in all as a non-family senior leader. Their succession decisions were handled reactively and a period of uncertainty and stress followed for the remaining owners, employees and the suppliers. Also, revenue and profitability growth took a hit, as did overall family wealth. No question that in hindsight, all would agree that they should have held these conversations sooner. As we explore this further, consider the following few questions:
- Whose responsibility is it really to initiate these discussions?
- Are the impacts of an involuntary transfer clearly understood?
- Where do you begin … and are the costs and time required very high?
Over the next few posts, I will unpack each of these questions and hopefully offer some encouragement, tips and tactics to get you thinking about initiating the process early in your business. I tackle the first question below.
Whose responsibility is it to initiate these conversations and what are their respective roles?
I believe respect and the very nature of their relationships gets in the way in a lot of cases. The 2nd generation feels, out of respect, they will wait for the 1st generation to bring up the topic. The 1st generation, out of respect and an eagerness to observe the “entrepreneurial drive and tenacity” in action within the 2nd generation (similar to what they had when they started the business), waits for the 2nd generation to bring up the topic and demonstrate the desired behaviours. What is the result? Inertia, indecision, increased family and organizational tensions and less than optimal performance and wealth creation.
How might we overcome this typical scenario?
One answer to this is that both the 1st generation and the 2nd generation are responsible. I call this “Equal Onus”, or shared responsibility / burden. The phrase is intentional and deserves a little more unpacking. It is a concept taken from a world-class leadership training company, Eagle’s Flight that has empowered and improved many leader – employee relationships and overall engagement levels in both large and small organizations. I was privileged to participate in a 2 year leadership program with my former employer. Both leaders and employees learn that they are to share the burden or responsibility for the success of the organisation and everything that happens within it. This is in effect, shared accountability. Interesting synonyms for ‘onus’ are: burden, responsibility, liability, obligation, duty, weight, load, etc. Not exactly a conversation you bring up casually when working alongside a family member or at one of your family gatherings, is it?
Setting the Stage for Equal Onus in Family Businesses
Setting the stage for the “Equal Onus” state to occur takes deliberate action from everyone, will take time and is very difficult to do within family businesses. The benefits are incredible though as it takes the sole burden off both parties and also encourages deep thinking and reflecting on behalf of the 2nd generation to explore whether or not they even want to become an owner. The phrase obligates them to explore their own intentions and craft a vision for their future career – whether inside or outside of the family business. They will want to have thought well ahead about this before planning for an “equal onus” discussion with their parent(s).
I think of the varying personalities that are involved, the nature of parent-child-sibling relationships along with the busyness, and at times, chaotic and unpredictable nature most business environments today. Creating an Equal Onus environment takes really deliberate steps and skills. When reflecting on my career, I entered the businesses after a reactive transition transfer had taken place and had to work through the resulting challenges and effects. So, this is where I now sense a high calling to ensure the transition conversations and plans take place earlier in all future family businesses I am involved in. In my opinion, there is no better path to a successful transition plan than for each generation to fully understand and embrace the shared responsibility / burden. The stakes are higher than they ever have been, given the competitive, economic and technological disruptions taking place so rapidly today. So, how can we get started?
A Catalyst For Creating the Equal Onus Environment
A person with the independence, trust and professional expertise in family transition planning is key to bringing all the family members together, in the right place and time, using proven processes and offering dialogue that encourages mutual respect for what each generation can bring. Effective processes in this area involve facilitated family meetings and follow-up one-to-one conversations with each of the stakeholders (current and future) to ensure that what was discussed in the family group is agreed upon by everyone and any and all of their concerns will be heard.
It is not reasonable to expect the family accountant and lawyer to foster the “Equal Onus” environment, both due to skillets required and the time limitations involved. These professionals have very important roles to fulfill in a transition plan, but not at this initial stage, I believe. It is far more effective to engage someone that will take the time required to get to know your specific business and family dynamics and work very hard to build and foster the “Equal Onus” environment among all stakeholders over a period of time.
So, you can rest a bit easier – all of the burden is not on you! It is a collaborative and shared burden among everyone, including your family advisor to proactively set the stage for early transition planning to take shape. When this burden is shared, the chances of the transition plan to be created proactively significantly improves, as will the expected outcomes –such as; improved overall relationships between family, employee, supplier and clients, future business success and improved family wealth.
In the next article, I will unpack question #2 above regarding the tangible and intangible costs of not having a proactive transition plan in place. Please stay tuned!