FAMILY BUSINESS SUCCESSION PLANNING:

HOW FAMILY DYNAMICS AFFECT THE PLAN

AND WHAT TO DO ABOUT IT

By Ronald Prehogan and Raymond E. Drost

“If you don’t know where you are going, any road will get you there”. In business and in life, this famous
Lewis Carroll saying certainly holds true. When families are in business together, that much more is at
stake as the road becomes a minefield of complexities.

The reason for that often has to do with the difference between the way businesses and families
successfully operate. In a successful non-family business, employees are hired and remain in the business
based strictly on merit. However, in a family the only criterion for “admission” and “retention” is simply
being a member of the family. Troubles begin in a family business when the lines become blurred. What
is a business owner supposed to do when his or her employed child is not up to snuff? More often than
not, the owner keeps the child on which unwittingly begins a downward spiral for the business and the
family. Intentions were good and noble but the result is often disastrous.

Another key factor has to do with a basic parental conflict between giving children the tools to succeed
or a financial security blanket in case that does not happen. Parents without the financial ability to
support their children after the children leave home do not face this conflict. The children have no choice
but to figure things out for themselves. The problem however is very real in families with significant
wealth where the blanket can become so secure that the children are sadly denied the motivation to
succeed.

From time to time, we hear explosive stories in the media about family disputes in well-known family
businesses. These stories tragically bring out the most salacious and negative aspects of family-owned
businesses. However, in our experience there are as many happy family business stories as there are
unhappy ones yet the happy stories do not garner anywhere near the same levels of public interest or
attention.

The point here is that no matter how well or not the family functions, Lewis Carroll’s saying applies. It is
imperative for any business that aspires to succeed to put a robust succession plan in place. That plan

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becomes the road map or GPS telling the business owners how to get to where they want to go with their
business. In this article, we hope to prove that to be the case and provide some helpful suggestions as to
the kind of planning to be done depending on the family functioning level.

We intend to do this through the prisms of two case studies as presented to us:

• Family Business A was owned and managed by a patriarch in his late 50s who had taken the
business to a level that he felt would soon plateau if he did not hire a non-family CEO with financial
skills that the patriarch lacked. His eldest child had recently joined the business after years of
post-secondary education and work experience outside the family business. The patriarch was
dealing with a clean slate. No problems apparent or on the horizon. He just wanted to maximize
the value of the business going forward. What his children decided to do with their lives was
entirely up to them.

• Family Business B was in its second generation owned and run by siblings in their late 50s. The
siblings’ children had worked summers in the business while going to school and now the oldest
ones were starting to work there full-time. Family issues were beginning to creep into the
business and the sibling owners were having difficult conflicts which they were unable to resolve
on their own.

In the case of Family Business A, the patriarch set up an Advisory Board to hire and oversee a non-family
CEO. In the meantime, we facilitated Family Council meetings to open lines of communication about the
business and the desire of the children to be part of it and to what extent. The children became growingly
active members of the business until they were able to run it on their own and the non-family CEO stepped
aside. The patriarch is now in his 70s and happily retired watching his well-adjusted children figure things
out in business and in life like he had to do when he was their age.

If the patriarch had not started planning when he did he would have worked in the business longer than
he felt he should, and family harmony might well have been compromised with his children having to
report to him. Instead, the non-family CEO mentored the children which allowed the business and the
family to run the way they were supposed to. That success did not just happen by itself. It happened by
purposeful and sustained planning and implementation that we helped with over many years.

In Family Business B, our first challenge was to determine if the family could continue to work together in
the business. With the guidance of our Family Business Psychologist, it became soon apparent that there
was no way to “put the genie back in the bottle”. Relations between the sibling owners and within and
among their extended families had deteriorated to the point where a business divorce was the only viable
solution.
© 2019 Equitas Consultants Inc. 700-100 Queen Street, Ottawa, ON K1P 1J9
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We then brought in our Family Business Mediation team consisting of a lawyer with family business
facilitation and advisory expertise and a business valuator with family business advisory expertise to lay
out the various options for the sibling owners. We helped them decide to divide up their businesses and
who would get which businesses, and then created and implemented all the necessary planning and
documentation. We then referred the sibling owners for independent legal advice and had the documents
signed and the transaction closed in relatively short and inexpensive order.

What would have happened if the siblings had not decided to seek expert family business advice? One of
them would unquestionably have hired a litigation lawyer and the end result would have been akin to
what happens when a husband or wife hires a matrimonial lawyer when the marriage is in trouble.
Litigation would have ensued and besides the parties having to bear the significant costs of two sets of
lawyers, they would have also had to hire two sets of business valuators, accountants and tax advisors
and the matter would have taken years to resolve with the airing of all their dirty laundry in the media,
the workplace and in their personal lives. The financial cost would have been measured in millions of out-
of-pocket dollars not to mention the untold cost of a business with the owners’ focus being more on the
litigation than on the business itself.

Instead, the parties placed their trust and confidence in our Family Business Mediation team and the
matter was handled quietly, quickly and at a fraction of the cost. The owners were not always pleased
with our advice but ultimately, they trusted that the result they would get would be fair, reasonable and
professionally and objectively arrived at. They were considerably better off trusting expert mediators to
tell them what to do than hiring teams of professionals to take extreme positions on their respective
behalves only to be brought back to reality by a judge several years down the road. Although neither was
happy to be in the position where they had to get a “divorce”, they were each comforted to know that
matters got resolved as efficiently and effectively as could be.

The chart below is a tool for family businesses to use in order to allow them to self-assess their place on
the family functioning spectrum in order for them to then determine the type of planning they need.

© 2019 Equitas Consultants Inc. 700-100 Queen Street, Ottawa, ON K1P 1J9
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When we first started working with Family Business A, we found them in column #2 and now almost 20
years later they still remain in column #2. In the case of Family Business B, when we first started working
with them we found them to be in column #4 but the situation soon deteriorated to column #5 and then
to column #6. In other words, time was of the essence to resolve their problems. Anything short of a
speedy and determined resolution would have derailed the process and resulted in litigation.

Once one determines where they fall on the family functioning spectrum, the question then becomes
what to do with that information. The chart below summarizes the type of planning that is recommended
for each of columns #1, 2, 3, 4, 5 and 6.

© 2019 Equitas Consultants Inc. 700-100 Queen Street, Ottawa, ON K1P 1J9
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Whether you are a family in business or a trusted advisor to one, it behooves you to properly address your
(client’s) succession planning needs sooner rather than later. Your (client’s) business and family lives
might very well hang in the balance.

© 2019 Equitas Consultants Inc. 700-100 Queen Street, Ottawa, ON K1P 1J9
613-569-7001
info@equitasconsultants.com