Passing on a family business is about more than just transferring assets and money; it's about preserving the legacy you have worked throughout your life to build. While navigating a business succession is always complex, the process tends to be particularly fraught and laden with emotion when a family’s unique dynamics come into play. In fact, succession-related conflicts are a primary reason only 30 percent of family businesses manage to survive beyond a single generation.

While it’s impossible to prevent every family conflict that might arise during the business succession process, you can formulate a strategy now that will better position you to address and resolve any disputes that do erupt as the next generation prepares to take the helm.

Draft a Formal Business Succession Plan

It’s never too early to establish a formal plan for business succession. Doing so long before you exit the business will provide a critical level of certainty and ensure all stakeholders know what to expect once you actually decide to step away by:

• Establishing objective criteria for selecting successors, including qualifications, experience, and performance metrics.
• Specifying the roles and responsibilities of each family member within the business, both during and after the succession.
• Setting a timeline for the assumption of responsibilities.

Reviewing and updating your succession plan annually will allow you to address changing circumstances and ensure the protocols you have in place align with the needs of your business and those of your family.

Ensure Communication and Transparency

Establishing clear lines of communication among family members and other stakeholders will facilitate transparency, reduce the potential for misunderstanding, and keep everyone aligned with the business’s goals and vision.

• Communicate How the Plan Will Unfold: Once you have a succession plan in place, provide your family members and key employees with a clear vision for the coming months and years.
• Provide Regular Updates: Hold regular family meetings to discuss the succession process, address concerns, and provide updates.
• Encourage Open Dialogue: Encourage family members to voice their opinions and ask questions, ensuring that all discussions are respectful and focused on finding common ground.

Clarify All Roles and Responsibilities

While multiple family members might hold a stake in your business, that doesn’t necessarily mean they all should have decision-making power or be involved in daily operations. Ambiguity in roles and responsibilities can lead to conflicts and power struggles at any stage of the business life cycle, particularly during the succession process. By clearly defining each family member’s role as it relates to your business, you can head off conflicts during the handover and ensure key decision-makers are vested with the authority to resolve any disputes that do occur.

• Job Descriptions: Develop detailed job descriptions for all roles within the business, outlining specific responsibilities and expectations.
• Alignment with Skills: Assign roles based on individual skills, experience, and strengths rather than family hierarchy.

Implement Conflict Resolution Mechanisms

Despite your best efforts, conflicts could still disrupt your business succession process. Establishing formal conflict resolution mechanisms and protocols before you’re ready to step away will help ensure these disagreements don’t rage out of control.

Some options to consider include:

• Mediation and Arbitration: Establish formal mediation and arbitration processes, such as internal committees or external professionals trained to facilitate fair and impartial resolutions.
• Conflict Resolution Training: Offer training programs on conflict resolution and negotiation skills for family members to equip them with the tools to handle disputes constructively.

Enlist a Family Advisor

An experienced family advisor can provide invaluable support during business succession by offering objective advice, mediating conflicts, and helping family members balance the emotional aspects of the transition with the practical necessities of business continuity. However, it’s critical that you engage someone with specific experience in handling family business successions. Their expertise will allow them to identify potential areas of conflict and formulate effective strategies for addressing them before they can threaten the enterprise.

Takeaway

Business succession is a delicate and complex process, particularly for family enterprises that carry both significant financial and emotional value. But while challenges are inevitable, a structured approach will ensure you’re well-positioned to successfully pass the baton to the next generation and secure your legacy for the future.