Planning a Funeral for Your Family Business
By Amy Schuman and Bernard Kliska, Ph.D
Driving home from a particularly difficult consulting session about family succession, we saw a sign on a funeral parlor: Plan Now! Don't Wait any Longer and Burden the Ones You Love!
As consultants, we often become involved with family businesses far too late in the founders lives, after years of bad decisions or non-decisions about the future of their businesses. It is one of the fundamental paradoxes of human nature that founders may fall into: Although we all know that eventually our time will pass, we prefer to delay planning for that day as long as possible. We do the obvious buy insurance, perhaps prepay for our funerals, buy our plots, even make our wills but that's as much thinking and planning as we want to do.
We often find that when founders do make succession plans, they keep one eye closed because they're not really willing to face the inevitable end. At least in people's private lives, when that inevitable time comes, undertakers efficiently tend to the necessary details. People are put to rest and the families will go on. But for an unprepared family business, the founder's passing can create chaos and family clashes that can leave not just the founder but the family business itself lying in the dust. The best estate planning is done well in advance, not during the tidal waves of emotion.
Many of a family business bad decisions or non-decisions about the future occur because, instead of genuinely envisioning his demise, the founder is just trying to smooth things over.
It's like undergoing cosmetic surgery while the arteries are slowly being strangled. Do children lack an interest or aptitude for someday taking over? Put them into the company anyway because maybe someday they ll change their minds and learn. Are some relatives who never contribute to the business complaining about being left out? Give them some stock to quiet them. Do estate plans need updating? Tomorrow is time enough, and anyway, there are enough general guidelines and wishes laid down so that the family will be able to work things out.
But tomorrow has a way of arriving with startling suddenness and chaos. The founder himself, whether prepared or not, may well go gently into the good night, but even when he quits the battlefield, the battle still rages.
From the birth of the family business until the heir's rebirth of the dream, everyone must keep the larger perspective in mind. Families must always understand what is happening, what has happened, what could happen and what should happen. At least twice a year, families should review and act to prepare for a successful transition.
We frequently remind our clients that, like life, a family business is a process that will unfold regardless of any one individual, and they cannot fight or deny it. Family members must constantly tend to their complex circumstances and relationships that develop and change over time. They must make, not defer, the tough decisions. They must acknowledge, understand and respect change, manage it to the extent that they can and know how to steer with, not against, the river of time. They must try to read the future, but they also have to realize when their charts are off and adapt.
Three components help ensure a smooth transition: strategic planning, an outside board of directors or advisors and the ability of family members to communicate and to resolve conflicts.
Strategic Planning. Founders often think about a future that includes them. They're startled when we bring up the issue of transition as part of strategic planning. To such a founder, strategic planning doesn't mean a transition plan but a business plan a five-, ten- or even twenty-five-year plan with the founder still at the helm, even if only in an honorary position. They often imagine themselves playing an active role in any transition; if they could arrange it, they'd have their ghosts sit in at all future family meetings. We try to remind them that the time to be active in the transition is now, not later. They don't have to step aside now, but they should have everything in place so that, if something fateful happens to them that very night, their companies will survive and prosper. Their hearts may totally miss a beat, but the company must not. The day will come when the family will have to depend upon the business, not upon the founder.
An Outside Board. Death, even when we think that everyone s prepared for it usually throws the family into chaos. Grieving, denial, anger, long-suppressed jealousies and rivalries, shifting roles, shock, and all the personal and professional details that quickly accumulate tend to overwhelm the survivors and swamp their ability to make good decisions. During the emotional and organizational transition, a trusted, calm and well-informed board is invaluable at holding the course. A family business that prepares for its founder's funeral well in advance should make sure that the board is in on the planning and knows the family's thinking and wishes well ahead of time.
Family Communication. One of the most persistent myths is that families who bicker and have a difficult time making decisions will rally during a crisis and pull together. In fact, the opposite is true. During a crisis, the habitual family emotional and communication patterns intensify. As with estate planning, good communication starts in the present, so that it has strong roots when the future suddenly arrives.
We never really believe that our hair will fall out, our guts will expand, or our children will grow up with ideas about their lives that don t match our plans for them. But the future eventually comes to all of us, and it rolls in harder, with more surprises, to family businesses that have denied or turned only one eye toward it.
We can never save time; we can only invest it while it goes by. An hourglass sits on each of our mantles, and if we look clearly, we can see that the sand is undeniably trickling down. If our Creator is kind, and if we do our best, the amount of sand in the hourglass is enough to allow us to do what we have to do. We seldom know exactly how much sand is left, but we know that it's finite, and it s running. Sometimes that seems alarming or sad, but it s what also makes life beautiful. And as everyone knows, deadlines, if we respect them, make us more productive.
There are several issues and questions to consider in strategic estate planning. Remember that although the focus of strategic estate planning is on the future, the actions must begin immediately. The seeds of the future are always in the present.
Current Relationships and Communication within the Family. What can family members do right now to improve communication about family business matters? What are the emotional conflicts within the family now that may intensify during a crisis? What should they teach in-laws and more peripheral family members now about the values and traditions of the family and of the business?
Governance. Who decides which family members are included in the business? Is everyone on the same page about it? How much do the unofficial advisors, such as spouses, influence decisions? How are disagreements between the family and non-family members of the business handled?
Allocation of Profits and Assets. Who gets what when the founder dies? What will be done for family members who don't directly participate in the management of the business? What about the children and grandchildren including the ones not yet born? What types of compensation, rewards, roles and expectations are expected for non-family members who participate in the business?
Succession. Which financial information does the founder share, and with whom? Is the business protected from estate taxes and other liabilities? Has there been open, honest dialogue about whether to sell the family business when the founder dies?