The “Do Nothing” Conspiracy That Derails Succession Planning

Posted by Rock LaManna

Succession Planning: Get Going!

As part of my upcoming presentation at PRINT 13 on “Making Big Decisions: Will Doing Nothing Destroy My Business?” I tapped our family business guru Tom Hubler.  I asked why family businesses opt to “do nothing” instead of pursuing strategic transitions like succession planning.  That’s when he introduced me to the Family Business “Do Nothing” Conspiracy.

The “Do Nothing” Conspiracy includes all the people that collaborate to stop family business leaders from initiating major strategic transitions.  This includes succession planning, pursuing a merger and acquisition, launching a partnership -- anything that involves dramatic change.  

Take a look at the list of conspirators:

The spouse.  A spouse can become very accustomed to a particular lifestyle, and may become resistant to an owner’s decision to retire.  For example, an owner might want to retire and move to Florida and play golf, but a spouse may oppose the desire and want to stay close to family and friends.

Tom talked about a particular succession plan that he helped create for an owner.  When it was introduced to the wife, she objected, stating, “I’m too young for my husband to retire.”

The children.  Sons and daughters working for a business are going to be resistant to changes affecting their current role, or fearful of letting their brothers or sisters assume leadership positions.  They may also be resentful if someone outside the family looks to be next in line to run a business.

The current advisory team.  The owner’s current advisors, including accountants, lawyers and consultants, may also collaborate to stall any succession planning.  Their own livelihoods may be at stake, especially if they’re unfamiliar or at odds with the new regime waiting in the wings.

The owner.  An owner of a family business will avoid any talk of succession planning because he (and I’ll use the male gender here to avoid confusion in this post) resists change.  He wants to remain in control of the day-to-day activities, especially if that’s what he’s been doing for years.

Tom recalls the owner of a tire store saying that when he went to heaven, he hoped he could still sell tires.  That love of the job, and the sense of identity it creates, can be a powerful incentive for an owner to resist change.

What we have here is a “do nothing” conspiracy of epic scale – and everyone is in on it, including the owner!  So why can’t I just leave well enough alone?  Why am I raining on everyone’s desire to “do nothing” and maintain the status quo?

Let’s look at that why “doing nothing” could be disastrous when it comes to succession planning:

Financially:  At some point, like it or not, succession will take place.  If you recognize the fact that succession planning is needed and promise to do it “some day,” you may want to consider taking action sooner than later.   Here’s why.

Succession planning takes time.  Lots of it.  In some cases, it can take up to 10 years to set up the proper trusts.  The sooner you start, the more control you’ll have over where your money goes.  

Emotionally: When there is a void in planning, it almost always leads to conflict.  If you were to die tomorrow, what would happen to your children who want control of your business?  Without your leadership, a conflict would likely ensue.  Tom knows first-hand how many of these cases result in lawsuits and broken families.

While my own family business didn’t experience a similar fate (we hired Tom early in the succession planning process), I nevertheless experienced first-hand the internal family conflicts that can result from a family business.  It can be a trying experience, even when you do things the right way!  (As Tom notes, that’s preferable to the gruesome alternative.)

How do you avoid the “do nothing” conspiracy and take the next step?

  1. Identify if you want another generation of family in the business.  If so, think about the training and development of family members for leadership positions.

  2. Create a plan of economic security.  As painful as it may be, you have to sit down with family and talk about money, and how this transition will work.

  3. Establish equitable treatment of all adults.  The succession planning should also include the treatment of the adult children who are outside the family business.

  4. Minimize estate taxes.  This will be a huge priority; what can you do to reduce your estate taxes?

  5. Generate family awareness.  Inspire some discussion among the family, and try and solicit some feedback.  As the owner of the business, you don’t have to abide by the wishes of your family, but it will help any transitions if you are aware of them and respect them.

Succession planning is a common target for the “do nothing” conspirators, as they try to avoid a lot of hard, and sometimes painful, work.  But these people inadvertently create the problem they are trying to avoid.  

It will be more painful upfront to take the bull by the horns instead of succumbing to the “do nothing” conspiracy.  Yet in the end, you’ll have established the long-term peace and harmony of your family.  Can there be any greater legacy than that?

 

Topics: Succession Planning, Family Business