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Question from Scott: How do I help take the family business to the "next level" without insulting someone who has spent their whole life getting it to this level?

Sandra Harvey, a partner at Murphy Business Ottawa: The first thing is to start early with the discussion. This is very difficult in a family environment when there is a transfer of leadership and management. Often the senior member remains involved as a shareholder or in an advisory role, or at minimum at the Sunday dinner table. It is important to be sensitive and aware of the predecessor's contributions, values and skills. Here are some tips:

Communicate: Make sure senior members understand how much you value their contribution, experience and knowledge. They have been your teacher, mentor, coach and leader. Talk to them about your ideas but you may wish to do so slowly. Give them time to adjust out of their function as leader and find their new role. You may need just as much time to find your feet, and your staff may need some time to adjust to new leadership.

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Connect: Most people just want to feel that they are valued and their contribution is recognized, respected and appreciated. Whenever possible, link your changes to the foundation they have laid for you.

Engage: If they are still involved in the operations of the company, ask them to assist with the changes. This may take come convincing but focus again on something that is a natural progression for them. Or as an alternative, they could fulfill a vital role that does not require a lot of change, but is very important for the core operations of the company. This comes back to the valued principle.

Support: Find support outside your family. Organizations like CAFÉ (Canadian Association of Family Enterprise) are excellent support systems and the members provide a wealth of information. We learn from each other, just as you have from your family. In particular, CAFÉ's Personal Advisory Groups (PAG) is an ideal format to be able to confidentially share your challenges and successes while gaining valuable input and support from your peers.

Brent Banda, president of Banda Marketing Group Inc.: Ask the exiting family member for assistance in developing a business plan to drive long-term growth. If both generations collaborate in this planning process, both will feel ownership to the direction of the plan and genuinely view this next phase as a natural step in the historical growth of the business.

The process of crafting this plan has considerable value for the organization. First, this document helps with transition and functions as a bridge between generations. Second, the collaborative effort will result in practical and realistic plans for future growth.

Both people must be flexible to accommodate the other's point of view. For example, a family member that is exiting the business may prefer to preserve capital while the younger generation may wish to risk 'the war chest' to aggressively pursue growth. In this case, it may make sense to take a moderate approach to growth that reduces risk. A market penetration growth strategy (expanding market share in your current lines of business) is far less risky than expanding through diversification (entering a new line of business you are currently unfamiliar with).

Murray Gottheil, a partner at the law firm of Pallett Valo LLP: You start by improving communications with that person (who I will assume is the founder) so that the question is no longer relevant. One of the difficulties in family businesses is that the emotional relationships that start at the kitchen table often carry on to the boardroom table. Fathers and mothers speak to their adult children in a way that they would never speak to non-family employees, and sons and daughters say things to their bosses that no non-family employee would ever say to his or her boss. On the other hand, children sometimes cannot present to their parents the hard truths that a CEO might want a key employee to put forward.

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There are professional advisers with backgrounds in psychology, social work and family business, who specialize in helping family members overcome these difficulties and learn how to communicate with each other in a family business. I suggest that the first step is to speak to one of these professionals and see if you can clear away the family baggage that may otherwise prevent you from having the necessary conversations with the founder in a safe and respectful way.

Vin G. Tsui, a founder and managing partner of Business Lawgix LLP: The answer is patience, education and communication, but not necessarily in that order. These three things are the foundation of successful change management in a family business.

Taking a business to the "next level" is seldom a product of minor changes. The level of change being contemplated is not likely to happen overnight. Your plans will need to account for the degree of acceptance by those who have spent their whole life getting the business to its current state. People tend to prefer maintaining the status quo. So make sure you have a lot of patience and take solace in incremental changes over time.

To get buy-in for the changes you wish to implement, you also need to educate. Lack of understanding breeds distrust and fear. You need to ensure that those affected by the changes understand the need, nature and value of the impending changes. No one is suggesting that you lecture everyone on the value of innovation. But you need to build dialogue through various forums to gain acceptance for the planned changes. You need to establish strategic alliances and identify champions for changes that you aim to implement.

All of this requires effective communication. This deceivingly simple concept is often difficult to implement in practice. In a family business effective communication is at the same time marred and assisted by the family history that the participants share. Communication involves more than just words.

Personal biases, predispositions, context, gestures, body language, tone, history, and mood have the effect of modifying a simple communication. Because effective communication is at minimum a dyadic relationship, there are at least two interpretations to each element. Consequently, a phrase like "I don't care" can impart a multitude of meanings. I have learned that depending on the context, such a phrase can actually mean, "I care a great deal" (I thank my wife for that lesson).

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The essence of communication is not what is said, but the message that is perceived. Effective communication requires that the recipient receive the content and meaning of the message as intended. The following are some keys to effective communication:

▪ Ensure that the communication is timely, consistent and meaningful.

▪ Tailor your message to your audience.

▪ Make your message clear and compelling.

▪ Think about your message before communicating it.

In crafting your communication (whether verbal or written), ask yourself these questions: How will someone in the position and condition of the recipient (with similar experiences, tendencies and biases) receive the message that you are trying to convey? When is the right time and where is the right place to deliver the message? Are you the right messenger? Does the message need to be delivered at all?

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Sometimes, it is more effective to present recipients with sufficient information to allow them to discover the intended message. In other cases, the best way to deliver critical messages is through an independent third party, such as a trusted adviser of the recipient. Every situation, and to a certain extent every person, is different and there isn't a one size fits all solution. Finally, do the best that you can to separate personal history from business imperatives.

Question from Eileen Hennemann: What would be a key component in each of the four experts' services that would convince a founder to establish a succession plan, as well as pursue this exercise now - not later - when retirement is near?

Murray Gottheil: Founders care about their families, their employees and their legacy. Protecting all of these interests requires giving thought to a number of issues. These include maximizing the value of the business, preparing family members to take on responsibility for the business, establishing conditions under which family members and the business will be able to thrive without the founder in charge, taking steps to ensure that key employees who are not family members will remain loyal, and taking responsibility for not allowing sibling rivalry or other family issues to jeopardize the financial well-being of everyone involved.

Since founders do care about all of these things, one would think it would be difficult to imagine why a founder would have to be convinced to establish a succession plan. However, founders are also human – some are afraid to contemplate what they will do when they are no longer running their own businesses, or to think about their own demise, and these fears prevent them from addressing business succession.

Managing and documenting expectations among key stakeholders is very important throughout the succession planning process, and this often translates into legal transactions and documents, such as corporate reorganizations, share purchase agreements, employment contracts, employee share ownership plans and shareholders agreements. All of these arrangements take time and require thought and buy-in from stakeholders. It is rare to see the process of managing and documenting expectations improved by the urgency resulting from the death of the founder, or a last-minute decision for that person to retire or step down due to illness, or the departure of key employees due to uncertainty. In addition, there are specific things that can be done to improve value or obtain tax advantages that will only be effective if started several years before the founder retires.

Vin G. Tsui: A business lawyer's key role in the succession process is twofold, transactional and planning. On the transactional side, the lawyer puts the necessary structure and contracts in place for the various transactions involved and ultimately effecting the legal transition of the business. On the planning side, the lawyer provides advice and guidance in the planning process, and works with the other professional advisers to devise a sound succession plan.

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A proper succession plan involves a myriad of strategic decisions and business transactions. The decisions that are required to effect a proper business transition should not be last-minute ones made on the eve of retirement. The transactions may be complicated and require co-ordination of different professional functions from lawyers to accountants, from financial planners to insurance brokers. Many of the transactions must be put in place years in advance of the intended date of transition. A seemingly simple transaction can have significant implications on different areas of a family business. The lack of planning and preparation in these matters often results in significant financial costs to a family business and exacts a huge emotional toll on the family members.

For example, an owner who hopes to pass the business to the next generation must first assess the potential of the available successors and their inclinations to take over the family business. The preferred successors will need to be groomed to take the helm. Grooming may involve rotation into different job functions inside and outside the business. This process alone requires strategic planning several years before the intended retirement of the business owner.

Contingency plans are needed just in case the preferred successors become unwilling or unavailable to take on the mantle. Reorganization and tax-planning transactions may need to be undertaken in advance of the planned transition, so it can be done in a tax efficient manner. The transition may involve dividing the business into different components. Such division may need to be done two or three years before the planned transition. Let's not forget the decision as to whether the transfer will take the form of a share or an asset transaction.

All of this may be complicated by rivalries within the family unit. Even where the business transition involves the sale of the business to a third party, the search for a suitable acquirer may take months, if not years. There are also strategic transactions that could be undertaken so that the business owner may get the best price for the business in a sale. These transactions may include steps to purify the company's balance sheet, clean up the company and properly prepare it for sale. In addition, as the intended business transition date approaches, the owner must critically assess his or her own personal preparedness to let go of the business.

We have only touched on the planning aspects of a succession plan. There are also wills and estate planning, tax planning, financial planning and insurance components that affect the overall succession plan. There are also circumstances such as illness, death and injury that may force a transition of the business well before the intended retirement date. Therefore, any business owner is well advised to put their succession plan in place sooner rather than later, and plan for the unexpected.

Brent Banda: A succession plan involves more than transfer of equity. It involves transferring the business to a new generation of owners who must make complex business decisions.

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My work with family businesses involves the nuts-and-bolts planning and strategic marketing for long-term growth. A carefully considered growth plan will address the issues of the day while helping prepare the business to operate without the founder. This can serve as the comfortable first step in a broader succession planning process.

Sandra Harvey: Planning ahead is vital if you are going to have a successful ownership transition of your business. You have worked very hard to establish and grow your business. You have invested a lot of energy, sweat, money and sleepless nights. In order to protect this investment, you should not wait until you want, need or are forced to sell. You also want to ensure that your business is positioned to remain prosperous in the future.

For example, it is important to look at the overall corporate structure, internal business processes and documentation, personal investments, tax and estate planning, pension plans, insurance policies, and alternative exit strategies. Some factors can be handled in the short term, but to maximize the benefits, you may need at least one year's lead-time. Ensuring your corporate structure is properly organized so that you can maximize any available capital gains exemption is the most obvious one, but there are many other tools that require at least one year to maximize their benefits.

Many owners are so busy with operating their businesses that they ignore tending to their personal affairs as well as the corporate and administrative details of their company. Find the right service provider who can help you co-ordinate all of these aspects. You should remain focused on operating your business, let your service providers take care of you and your family.

The key here is that it is never too soon to plan, but it can be too late to properly protect yourself, your family and your business. Our best sales are ones where we became involved well before the desired sale so the business assets could be maximized.

Question from Ingrid Philipp: Does any family business really survive the death of the founder?

Murray Gottheil: Yes! A family business whose founder makes it his or her personal challenge to make the business run independently easily survive the death of the founder. These founders do things right. They create corporate goodwill instead of personal goodwill. They train people to be able to handle every job in the company just as well as the founder can do it. They create redundancy in key functions so that the business is not reliant on any one person. They motivate employees, sometimes with equity participation. If children are to be involved in the business, they have an objective third party assess the capabilities of the children and they manage the expectations of the children so that a child who is not capable of being the president of the company aspires to a different role instead. They create a training program so that the children will succeed and have a non-family member mentor the children.

These founders also address issues of sibling rivalry. They choose a successor for each key role, and they make certain that the children all accept their place in the company. They create a shareholders agreement, and obtain the buy-in of the next generation to the terms of the shareholders agreement.

Furthermore, these founders make sure that all family members are treated fairly (but not necessarily equally), and this includes family members who do not work for the business.

These founders start working on their succession plan many years before they expect to retire and they adjust the plan regularly to meet changing realities. Their state of preparedness may go so far as to call a meeting of the family and the key employees, which would also be attended by the corporate lawyer and accountant, at which they rehearse exactly what would happen to the business and the family if the founder were to die suddenly.

Vin G. Tsui: There are two answers to this question, a philosophical one and a practical one. From a philosophical perspective, regardless of the amount of planning, it is unlikely that any successor will share the same passion and vision for a family business as that of the founder. In that sense, no family business will truly survive the founder. From a practical perspective, change is a necessary element to business survival. Very few businesses, if any, can remain stagnant and survive the changing business environment. A family business is no exception. Changes to a family business are inevitable both during the lifetime of the founder and posthumously.

During the lifetime of the founder the business must change with the competitive environment in which it exists. Once the influence of the founder over a family business is no longer germane, it is unlikely to remain exactly the same. Most founders want to see their business grow and succeed. Change is part of that growth. The best way to facilitate that growth, even after the death of the founder, is to have sound planning in place well before the unfortunate and often unpredictable event.

Advance planning and the implementation of sound legal structures will go a long way toward facilitating the orderly transfer and survival of the family business. Every business should have a plan to deal with the death of the founder. The plan needs to identify individuals who will take the helm upon the death of the founder. These individuals should ideally share the vision and missions that the founder has for the business. They must be trained in the operation of the business. Systems and processes should be established for the efficient transfer of the rights, obligations and knowledge of the business to the survivors.

The family business should be properly structured or reorganized as to permit the efficient transfer upon the death of the founder. Contractual obligations should include mechanisms that permit or contemplate the transfer of ownership. Redundancy systems should be put in place to ensure continued access to operationally imperative information. Mechanisms for effective knowledge transfer of key operations must be implemented. A plan should be established for continuity in the event of significant business interruption, such as a pandemic or a major interruption to key resources. In addition, a family business should have a plan for the retirement of the founder. Assuming a family business is being operated prudently, having these plans in place will facilitate its survival even after the death of the founder.

Sandra Harvey: Yes, a family business can survive and continue to prosper after the death of a founder but the question highlights some important factors for any business, but particularly family business.

1. Remain respectful of the past, and build from the lessons that have been taught and learned over the years.

2. Focus on the positive: the contributions and foundation the founder has provided rather than the negative of the loss of the founder.

3. New leadership is key in order for the business to remain focused and move forward. Staff need to feel that someone has control and that their contributions matter.

4. Planning is vital. Ensure that all information and knowledge is not held by one person, but rather held by the business. Documentation of processes and history is important so that if anyone should leave the business for any reason, the business can survive. Empower the people that are left to be able to continue. This rule applies for any business owner at any point in time.

Brent Banda: Absolutely. But steps must be taken to prepare for change that inevitably must take place.

Ideally, the founder would remove his or her own personal influence on the business over a period of years. For example, it's feasible that 20 years ago the founder entered a handshake deal with a supplier and that relationship is now integral to your business. That relationship has potential to deteriorate over time with the founder's departure. What can we do today to ensure that arrangement remains in place for another 20 years?

The founder's personal influence can also materialize in the company's brand image. Founders are often magnetic personalities, and the company's reputation may be built on decades of their own individual public exposure. The founder is the business. Care must be taken to adjust the company's reputation so the business will benefit from the credibility and history of the founder, but also reflects the additional depth and substance of the broader organization. Adjusting a company's brand image is a fundamental component of a strategic marketing plan and must be carefully managed over a period of time. It is best not to tackle this task the day the founder leaves the business.

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