Trading Places

If family members can't come to agreement on a business relationship or on a set of action steps that will be fulfilling to all parties, then should they split? If neither trusts the other, they may have to do that anyway. In our experience, parents who own practices are wrestling with demons related to their identity; their own financial security; and loss of control.

The children, on the other hand, are tormented by the idea that the purchase price will be a financial stretch and deep down, they feel a good parent should give them the business, not sell it to them. The baby boomers who made sure their kids got everything, now want them to act and behave like entrepreneurs yet didn't foster this spirit during their upbringing.

Recently I conducted a retreat for the Wealth & Estate Planning Group of London Life in Toronto. Over two days, fathers, mothers, sons, and daughters from 15 practices came together to discuss how to effectively make the transition. I partnered with Judy Barber, a family business consultant and licensed marriage and family therapist from San Francisco. My job was to address the hard issues of business succession, and she was to address the soft. The overlap is where the magic of family transition occurs, or conversely, where the dream ends tragically.

We asked each person to identify his struggles in the family transition process. The list was lengthy but provocative:

• How do we start the conversation?
• How do you keep it professional?
• How do you address a job transfer?
• How do you make the deal affordable?
• How will the transition affect other family members?
• How do you move from parent and child to business partners?
• How do we ensure other family members perceive fairness?
• At what point will the parent let go?
• What needs to occur for the parent to have enough confidence in the kids?
• How do parent and child trade places?

Avoidance & Failing to Plan

All of these issues are solvable, but that there are two major pitfalls that prevent successful transitions: Avoidance of sensitive topics, and failure to plan.

According to Barber, both parents and children convey mixed messages, and those conflicted thoughts and feelings make it difficult to discuss critical subjects. For example, a parent may say to a child, "I only want you to work on 'A' clients, or top-priority clients," but then assign them all the low-priority clients. Or, in private, Dad may say, "I'm excited to have you as an advisor," but in client meetings, introduce her as his "little girl just learning her way." He'll tell a client something like: "She's going to take over the relationship, but if you have any questions or concerns, you can always call me."

Parents and children also avoid sensitive emotional issues. Among the common taboos are the fear of aging and dying, the impact of their relationship on marriages, one's identity in the community, the fear of losing control and the fear of competition with the next generation. Underlying all of this for many is the fear that aging will make us the powerless "child" after always being the parent–a role reversal many of us already see in our normal lives.

Families fail to plan because a decision can be frightening for both parent and child, but for different reasons. Parents are not always ready to recognize that the son or daughter has become an adult. They also struggle with transitioning from being the boss to a consultant, and then out of the business altogether. They sometimes see their children's eagerness to create a succession plan and a new business model as a monster that needs to be put back in the box. Barber points out that when people lose their role in an enterprise, there is a period of mourning that includes all the stages of loss, including anger and grief.

She suggests a couple of techniques:

1. Create an intentional dialogue. Apply the techniques of listening (hear the feelings behind the words), summarizing (restate what you heard without expressing your own opinion), validating (acknowledge that what the other person said makes sense for whatever reason you can justify), and empathizing (acknowledge what they are feeling).
2. Manage the overlapping issues. From a family perspective, a relationship is based on loyalty, emotions, belonging, continuity, and harmony. From a business perspective, a relationship is based on tasks and responsibilities, competence and commitment, growth and change. To manage the overlap, it is important to devise means of effective communication, including listening, clarifying roles in the business, and for the parents, creating a constructive process of training and involvement so the next generation so can build up sufficient confidence to assume responsibility, and eventually control.

Effective succession planning is not totally about relinquishing ownership control. Eventually, the founder will need to contemplate how responsibilities for leadership and management are transferred as well. As the roles transition from parent to child, the father or mother will need to be clear about the criteria to ensure competence, commitment, and accountability, and what they will do to ensure their child does the right thing, to mitigate the anxiety and risk to the whole family. But the parents also need to manage their own demons, to remain fully committed to making the transfer work: for the sake of the business–and the family.