We are often asked to resolve succession issues within multi generational family business. In many ways issues that exist with family businesses can also appear within long established professional firms.
There are often many complicated inter related issues that causes problems at this critical time in the long-term success of the business or partnership.
We have found over the years that these issues can be summarized under one of four areas.
In this the third of the series we will briefly look at how lack of defined Boundaries can impact on Family Business Succession.
The relationships within a first generation business can be relatively simple. However as the business is passed on to future generations the relationships and the vested interests can become more entrenched and more complex with the passing of years. As it is not a problem the founding generation do not put time aside to consider the businesses future or perhaps do not even want to think about it. The rules for the ongoing ownership and management succession are not considered and so it is left to chance and abdicated to future generations to resolve.
Later, where there are no guidelines, the perceived wishes and principals of the founding generations can become misinterpreted. As the value of the business increases there may come a point where this misinterpretation can become intentional.
As the size of the family grows through marriage, relationships etc the number of stakeholders becomes larger and more diverse then the likelihood of emotional and personality issues influencing what should be commercial decisions becomes greater and greater. The boundary between family and business become blurred. With no guidelines and boundaries in place these pressures can undermine the business success and the wider family wealth.
It is understandable that with the main focus of those family members involved in the day to day management of the business it is easy to ignore the future structure and constitution of the family business. Leave it to another day or not even want to consider the implications of the legacy – The Pink Elephant is waiting to enter the room! This omission can have far reaching implications.
Calling a meeting of all the family stakeholders to draw up a Family Plan and Constitution which sets out the purpose of the business and the rules around future ownership participation and management succession sets those clear boundaries so that future generations can benchmark their decisions and actions.
Without a clear Family Plan and Constitution we are allowing that Pink Elephant in the Room (see other articles in this series). Due to the complexity of relationships the family may need an external advisor to bring clarity and impartiality to what can be defining documents that can impact future generations.
To read the next article in this series click here.