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Succession Planning

Step-children add complexity to family firms Add to ...

In today's world of second and third marriages, families are mixed and blended in more ways than tequila and lime. This has created a whole new challenge for business owners who want to one day pass the family firm down to the next generation.

The pool of possible candidates may expand to include not only the owner's biological children from an earlier marriage, but also the step-children of subsequent unions.

Let's say a business owner in his second marriage is considering the future CEO of his business. He has poured time, money and sweat into the company and he has built something he wants to preserve. He realizes the best candidate for the job is not one of his biological children, but one of his step-children.

Is this a problem? Probably not, if viewed purely from a business perspective. But in terms of family politics, it's like tossing a grenade into a chicken coop.

Children of a first marriage don't always play nice with new family members, and vice versa. Civility between the two sides is often pro forma, for the sake of the parent they have in common, not the result of mutual affection. None of this is going to be improved by a rivalry over the parent's business, as it can aggravate resentment into overt animosity. When it comes to a parent choosing who is going to carry on his life's work, it can feel intensely personal to the children.

It's not just a business, it's mom or dad's business.

A biological child who has grown up with the company and who always thought one day she would inherit it, might feel shocked and even betrayed to learn that a Johnny-come-lately would end up running the business instead. On the flip side, the step-child who has studied and worked to become capable of running the business might believe she has earned the right to the job.

No wonder so many business owners in this situation put off succession planning. The issues feel insurmountable. The rules for decision-making don't seem to exist. If the business owner considers only the future viability of the business, he would choose the capable step-child and accept the fallout from his kids. If he considers only family politics, he risks harming his business and possibly his own financial future if he is counting on retirement income from the company.

Business and family can't be separated when it comes to choosing a successor, leaving the business owner searching for a workable compromise.

Here are some suggestions:

  • Appoint two joint successors, possibly one biological child and one step-child. It may be risky - two people trying to run one company are naturally prone to different visions and plans for the business - and if there is already hostility between them, forget it.
  • Appoint neither child as CEO but give each one a management role under a neutral chief executive. Each child then has equal opportunity to work in the business and aim for the CEO role in the future.
  • Divide the company into separate businesses, with each firm allocated to a different child. It may work for companies that have different divisions, brands, geographical regions or lines of products that can be self-sustaining.
  • Choose one child or step-child to be the successor of the existing business, and have that person help the rival child or step-child build a new business. Your assistance might be in the form of financial backing, mentoring or partnership.

At the end of the day, if a compromise isn't possible, the business may have to be sold to keep peace in the family.

Lynne Butler is the author of Succession Planning Kit for Canadian Business, published by Self-Counsel Press and an accomplished estate planning and elder law professional. Visit her blog at Estate Law Canada.


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