Family succession: balancing financial and interpersonal aspects

Establishing open communication

Given the emotional intensity within families, achieving open communication can be challenging. On one hand, discussions about family succession are often delayed. On the other hand, family members, fearing to hurt or disappoint others, may hesitate to express their true feelings. Both situations can lead to long-term frustrations and complicate the succession process. It is worthwhile to seek external guidance and map out everyone's expectations and concerns at the beginning of the process.

Successfully managing the interpersonal aspects of family succession involves creating openness and making clear agreements. In-depth discussions with all involved family members form a solid foundation. Is the "ideal successor" genuinely motivated, and does the "less interested son" harbor hidden ambitions? What is the father's vision for his future role, and does it align with the successor's aspirations? Who within the business wishes to assume which responsibilities? Answers to these questions need to be transparently laid out to address the desires and concerns of all parties. Confronting family members with these during an open family discussion, facilitated by an external mediator, often becomes the next step. Making matters discussable and encouraging consensus is crucial and will result in clear agreements.

Continued below.

Creating the family charter

To ensure that these agreements are not fleeting and can serve as a real guide, it is advisable to document them in a family charter. While the focus in family succession naturally revolves around outlining the transfer process, other topics such as communication and commitment (working hours, leave, etc.) can also be addressed.

In essence, the family charter can be seen as a set of rules and agreements endorsed by the involved family members, guiding future collaboration. It serves as a kind of code of conduct explicitly addressing crucial subjects related to the relationship between the family and the family business.

Family succession is typically not an abrupt event or a specific turning point that happens overnight. On the contrary, it is a prolonged process involving different stages and various players with their unique roles.

In literature, two trajectories are discussed: the transfer trajectory and the role-switching trajectory. To effectively manage the entire succession process, it is beneficial to gradually specify both trajectories in the family charter.

Transfer

Initially, during the succession process, knowledge, leadership, ownership, and control are successively transferred. While the focus initially centers on sharing knowledge, the leadership of the family business is gradually handed over. Although this does not necessarily coincide with transferring ownership immediately, this next phase should also not be delayed too much. Finally, when actual control is transferred, the succession is complete, and the process is entirely executed.

To ensure transparency for all parties involved and to steadily advance the process, it is highly recommended to make concrete agreements regarding these forms of transfer in the family charter.

Roles and role transitions

Parallel to the actual transfer of crucial aspects, there is also a predominantly emotional and psychological process occurring: the role transition between the key players of both generations.

When a successor enters the family business, it is not uncommon for them, with or without completing some form of training, to function as an assistant to the transferor. As they gradually take on more responsibilities and gradually assume control over certain policy domains, the phase is reached where the older and younger generations run the business together, functioning as a tandem. However, when it comes down to it, it is often still the transferor who takes center stage with the younger generation in tow. Once these positions switch, and the successor is seen as the carrier and face of the family business in all aspects, the role transition is complete.

While the younger generation typically has a lot of enthusiasm to immerse themselves and expand their horizons, the role transition for the transferor is often less straightforward. Especially for the so-called "controlling owner" who likes to leave their mark and prefers to keep the reins in their hands, moving to the sidelines or the background can be challenging. Situations where the younger and older generations differ in their desired speed of the role transition process are not uncommon. While the ambitious successor may feel that things are not moving fast enough and prefers to go full throttle, certain transferors may stubbornly apply the brakes through various means to prolong the process. Such a two-speed situation can lead to friction and adversely affect the continuity within the family business, a situation best avoided.

If you wish to steer clear of such an impasse, here are some tips:

Plan and make it concrete: Dare to specify the role transition process in the family charter with a time-bound trajectory by translating it into concrete transactions that mark milestones in the transfer process. Involve a neutral moderator who can monitor the progress of the process alongside you.

Maintain an open mind: It is unrealistic to expect the new generation to be a clone of the old one. As a transferor, be open to the inevitably different perspective that the successor holds regarding the future of the business, personnel management, the work-life balance, etc. Often, these changes are necessary to navigate an equally evolving market. However, as the younger generation, do not dismiss all advice outright and do not discard fundamental values and the uniqueness of the family business arbitrarily.

Live (also) beyond work: As a successor, gradually work on activities unrelated to the family business throughout the succession process. Seek hobbies, social engagements, networks, etc. Nothing is more detrimental than the allure of a so-called hopeless black hole. If you want to let go more easily, look for alternatives to hold on to. Agreements regarding this are often made in the family charter.