Family businesses hold an important place in the Australian economy, but they mean even more to the people who run them. Not only are they the bread and butter for the family or families involved, they're also a very personal part of each member's legacy.
For that reason, it's both important and challenging to work out a strong plan for passing down the business to the next generation. These conversations can be emotionally charged and contain complicated or unexpected considerations.
Communication is the key.
Preparing for change
Family business leaders should start working out succession plans and having discussions with the future owners at a very early stage. It's not enough to offer small tidbits of information and advice now and then. Stakeholders must provide sufficient detail to enable successors and heirs to plan their transition from employee to owner.
Such communication can prove challenging, however - especially when families don't take a proactive, systematic approach. The notion that there are ‘elephants in the room’ that may never be discussed promotes an air of mistrust and negativity.
Periods of conflict can further obstruct fruitful succession planning. Most families go through times when siblings and parents fall out, which can cause arguments as people with strong views try to get their way. Such behaviour rarely works.
In order to foster good communication, business leaders must create the proper forums where the family can have detailed and robust debates in a non-confronting way. In our experience, three of the most beneficial approaches include:
- Family councils
- Fireside chats
- Informal management meetings
Whether taken separately or in combination, these strategies give families an opportunity to come together with the specific purpose of talking through the details of passing down the business. A more formal occasion can help people overcome the difficulty of thinking about these emotional topics and navigating sensitive family dynamics.
1. Family councils
This governance structure provides an opportunity to set aside time specifically for issues related to the company.
In a family council, business owners and the other involved parties come together to focus entirely on matters as they affect the family in relation to the business. Properly run, this forum should prevent family matters from overlapping with business issues - a problem that can create inefficiencies and distractions in the enterprise.
2. Fireside chats
Fireside chats are face-to-face meetings with one or more relatives to discuss issues around the family involvement in the business.
Topics may include succession matters – such as management and ownership – and specifically how, when and why the transition will take place. Importantly it may involve discussing the methodology used to assess the company's value.
After holding these chats, there should be no surprises regarding the transition plan.
Many successors believe they are going to get their share of the business by gift, so it's important to clarify and determine the best course of action. If the current owners are going to need funds from the business to fund their lifestyle in retirement, it may be better to sell and move on, rather than continuing to take salaries and dividends from the company that could restrict the next managers from growing the enterprise.
3. Informational management meetings
Owners may also discuss succession matters with key employees who will become owners during informal management meetings. In this case, it's helpful to have a strategy in place to ensure all of the relevant points are addressed.
Leveraging the right tools
In all of these forums there may need to be a degree of formality to ensure the meetings are effective. For example, setting an agenda, taking minutes and identifying follow-up action items provides a useful framework.
When it comes to family gatherings, it can be difficult to maintain an official context, but this factor really can help everyone involved work toward more fruitful outcomes.