It’s gotten so the big financial services companies produce a press release and related news story about family business two or three times a year. They are usually based on surveys they’ve done, and they’ve been doing them for 15 or 20 years now. They always tell pretty much the same story: Family businesses are woefully unprepared for management succession, they’re somewhat underprepared for ownership succession, very few have adopted formal business and family governance practices, and the senior generation has no plan to retire which creates a fair bit of uncertainty for subsequent generations in the business.

So why don’t family businesses, given the fact that the do or die test of their long term success is at issue, undertake more rigorous, thoughtful, and productive business succession planning? We’re sure there are a host of reasons, but there are nine which continually rise to the top of the heap. We’ll tackle three of the reasons each of the next three weeks in this blog. Please comment below or email me your reactions at wayne.rivers@familybusinessinstitute.com. We are always eager to hear from our family owned business readers!
1. It’s not urgent
For a healthy, relatively energetic 65-year-old with employee children ages 40, 38, and 36, there are many, many pressing events demanding his attention every day. Succession planning is high on his list of IMPORTANCE, but it rarely makes it to the top of his list of URGENT things. It was a goal to undertake succession planning in 2013, but it didn’t happen. The goal was pushed back to 2014; same story. In 2015, things were just too busy, and there was that accident on the job site, and an unexpected lawsuit came up which required plenty of time and money. The patriarch says, “We can do succession planning in 2014.” And so on, and so on. The fact is that the big picture, multi-year process of succession planning actually DOES lend itself to being pushed back a week, a month, a year. Business succession planning is rarely urgent – except when it is, and then it’s too late!
A corollary to the never urgent issue is the fact that there’s never any time. As described above, the life of a typical family business leader – especially in the years following The Great Recession – is a hectic, fast-paced existence where she moves from one task to the next, one meeting to the next, one phone call to the next, and one fire to put out to the next. The lack of downtime – time to simply put one’s feet up and relax – precludes deep, introspective business thinking and planning about succession. To gain traction, family business leaders and NextGen family members must make succession planning a priority and schedule sufficient time, money, and energy as they would towards completing any other high impact project. In the long run, what project is MORE IMPORTANT than planning for the future success of your business and family?
2. The focus on tax avoidance and “Drop Dead Plans” creates a false sense of security
When we started helping family businesses plan for a better future 27 years ago, the state of estate planning among them was woeful. Today, due to a concerted education effort on the parts of the legal and financial services communities, estate plans are much better thought out and more robust than ever before. And that, in and of itself, presents a problem. Almost all estate plans are crafted as ownership succession plans only, and the primary strategy behind the plans is tax avoidance. Now, no one wants to pay a nickel more in tax than necessary, but to allow the tax tail to wag the dog when it comes to family business succession planning is a mistake. Ownership succession is not management succession, and management succession is the 800 lb. gorilla in the room that must be acknowledged and addressed in order for a family business to prosper in the future. Who cares who owns the business if it is destined to go broke within five years of dad’s retirement? The fact that family businesses have spent hours and hours and thousands upon thousands of dollars to perfect their tax avoidance and Drop Dead Plans is a barrier to good family and management succession planning because it creates a false sense of security that everything is well in hand. That’s simply not true, and estate planning, while an important component of business succession planning, is only a piece of the larger puzzle.
3. Family member and/or employee push back
Families sometimes undertake ownership or management succession planning, think long and hard about pros and cons of potential outcomes, and then enter into discussion with family members or key nonfamily employees about the plan only to find that the employees give it a lukewarm or negative response and family members don’t think the plans are all they’re cracked up to be. That pushback is often enough to crush the enthusiasm and newfound planning momentum and cause senior generation family business leaders to say, “Why bother?” Perhaps the plans weren’t perfect, and maybe they were even pretty flawed, but whoever – senior generation or NextGen family members – starts the succession dialogue ought to be encouraged and given the respect they deserve. No great book was ever in final form at the first draft, and your family business succession plans will likely require many versions before they’re “perfect.”
Next week, we’ll look at three more rationales family businesses utilize to delay planning: fear of family upset, the lack of “how to” knowledge, and the stunning lack of courage displayed by successor generations.