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Family-owned businesses are the backbone of Canada’s economy, a major driver of wealth, growth and jobs. But if the transition of these family enterprises to next-generation leadership isn’t carefully planned and executed, there can be risks to their future success – as well as to family relationships.

“You have to set clear expectations or there will be conflict,” says Danielle Walsh, a member of the Family Office Services team at MNP, a national accounting, tax and business-consulting firm. A large number of MNP’s clients are private companies, many of them family businesses in various stages of their life cycle.

Ms. Walsh, a partner at MNP, says studies show that 67 per cent of family enterprises won’t make it to the second generation, 88 per cent won’t transition to the third generation and only 4 per cent reach the fourth generation.

Ms. Walsh says most of her clients “are often first generation trying to get to second generation, and they have a really hard time doing that.” If that changeover is not well done, the company “tends to crumble” by the third generation, often because the more motivated members of the family have left the business. This can leave “less committed and less competent” family members running the company, she explains, and they’re often more interested in “stripping it for cash and wealth” than in “building up a model of stewardship.”

MNP helps businesses with intergenerational succession planning, which supports both family harmony and the long-term success of the company.

“When a family business owner is having a rough time, it’s both in the business and at home,” Ms. Walsh remarks. “I try to make sure that we can keep those relationships as sound as possible.”

One “minefield” is friction between family members who are active and inactive in the company, exacerbated by a lack of transparency. “When I work with a family, I try to interview everybody – active, inactive, kids, grandkids, the whole bunch of them, because they all live it, breathe it and know it.”

Kerry Smith, MNP’s national leader of Family Office Services, says a growing part of his team’s work focuses on management and ownership succession, family communication and readying the next generation to take over.

Mr. Smith says “how the transition is ultimately structured” is critical. He’s seen a lack of planning send transitions off the rails. For example, in one case that MNP was brought into, the family business was being passed to one child, but the spouse of another started complaining things were not fair. The situation had foundered largely because the family didn’t involve professionals right from the start in “the soft side of the conversation,” Mr. Smith says.

“You have to get everything out in the open and make a plan,” he comments, noting that if that had been the case, “I think we would have had a totally different outcome.”

Ms. Walsh says it’s essential to help the whole family understand and support the overall succession plan by “opening the door to honest communication,” preferably before there’s harmful emotional baggage to deal with.

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Involve the ever-widening circle of family members, including in-laws, and align expectations, she advises. “Giving them the opportunity to ask questions in a non-judgmental manner certainly helps them to get on board. Once they agree to the general principles and rules, then you have objective decision-making.”

Difficult family dynamics can be distracting, and “in the years leading up to the transition the business struggles, because nobody’s actually building it and focusing on it,” she cautions. It can also be challenging to retain non-family managers when there’s an atmosphere of family chaos. “They don’t want to be sucked into accusations between siblings.”

Ms. Walsh says a major misconception surrounding succession plans is that they only need to be drawn up once owners are ready to retire. She recommends putting in place a “family business constitution with principles that are going to guide decision-making,” including the qualifications needed to be employed in and to manage the company. “If you can get a family to endorse these rules, it guides all decisions pertaining to the family in a way that’s objective.”

The entire family should meet once a year to reconnect and have a good time as well as to review and discuss any changes, she says. Younger family members can be engaged in planning and setting up activities in this annual family council meeting.

Ms. Walsh says the COVID-19 crisis made a lot of families pause their succession planning, with owners hunkering down and retaining control of business matters. It’s now time for the younger generation to step in and implement new ways of doing things, in some cases solutions precipitated by the pandemic, like customization or hybrid employment for staff.

Bringing in professional managers is an option, especially if there are age and experience gaps. “A non-family CEO can train the next generation in a non-biased way,” she says,

In cases where the business has been sold to a third party, there can still be issues of governance over private family foundations that extend the original owners’ legacy. MNP’s Family Office Services group has specialists who continue to work together with next-gen family members to “keep those values alive,” she says, with expertise in areas from wealth strategy to estate planning. “They all need to be speaking to each other,” she adds.

Advertising feature produced by Randall Anthony Communications. The Globe’s editorial department was not involved.