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Family successions and managing the emotions Add to ...

You’re about to retire, and the ambitious daughter you hoped would be an ideal successor announces she wants out of the business. Your brother jumps at the opportunity to run the company, but you don’t feel he’s got what it takes. Resentment boils over, and family turmoil threatens to sink your firm.

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This is a typical scenario at many family-owned companies, according to Theodore Homa, Senior Partner, BDC International Consulting Services.

“Emotional issues can create a volatile dynamic in family businesses,” Mr. Homa says. “These entrepreneurs often have made personal sacrifices to keep their companies afloat, so it’s hard for them to separate business and personal relationships,” he says. “In the end, those emotions can get in the way of making decisions that are good for the business.”

Unresolved family issues, such as sibling rivalry, put a strain on business successions. According to the Canadian Federation of Independent Business, 33 per cent of family businesses survive in the first generation and only 15 per cent survive the second.

Mr. Homa provides these pointers to help business owners proactively manage emotional issues in family successions:

  • Give yourself a lot of lead time to plan and execute – realistically at least two years. Family business transitions take much longer than one realizes.
  • Formalize your family succession plan to avoid disagreements down the road. Maintain an open dialogue with family members about your plans and get them involved. Keeping them out of the loop can simply sow family discord.
  • Create trust in your decisions, especially when it comes to the transfer of leadership. When you choose who will take over the helm, communicate a clear action plan to family members and employees. Reassure them that you have the mentoring and training in place to develop your successor in all aspects of the business.
  • Define roles and responsibilities and even put them in writing. For instance, a family member might be a stakeholder in the business, but that doesn’t mean that he or she automatically has the right to be involved in daily operations. By clarifying these roles, especially in areas such as what is the purview of management in running the business on a daily basis versus what is required for governance of the business, you can avoid unnecessary misunderstandings.
  • To address potential conflicts in the hiring of relatives, be sure you have clearly defined job profiles that outline exactly what you need in terms of experience, skills and education. After all, you don’t want to feel obliged to hire family members to do a job if you believe they are ill-equipped. At the same time, you don’t want to pressure family members to accept jobs that they aren’t suited to or interested in.

Seek external advice to resolve issues objectively. Experienced consultants can give you a third-party perspective that is invaluable. You can also turn to an advisory board, or even a formal board of directors, to provide a neutral point of view and help you through the various steps of the transition.

Content in this section is provided in partnership with the Business Development Bank of Canada. BDC provides entrepreneurs with financing, venture capital and consulting services. To find out more go to BDC.ca.


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