Trevor Throness - Understanding Soft Issues in Family Business Succession

1. Managing Soft Issues in
Family Business Succession
Keys to the Successful Transfer
of Family Values and Wealth

2. Why do otherwise astute owners
ignore business succession?
• They never planned for the business to
be what it has grown to today
• They aren’t wired to quit working
• There are too many thorny family issues
better left alone

3. What do founders worry about?
• Will wealth help or hurt heirs?
• Will wealth help or hurt family
relationships?
• Will transfer help or hurt the business?

4. What worries parents about
wealth transfer to their children?
Too much emphasis on money 60%
Naïve about money 55%
Spend too much money 52%
Initiative will be ruined by money 50%
Won’t take financial responsibility 42%
Resented because of money 36%
Will marry someone who wants $ 34%
Feel they will fail in the business 18%

5. Wealth Transfers Today
• 7.2 million people control 33% of the
world’s wealth (1 million investable
dollars)
• Fed estimates 56 trillion dollars will
change hands in the next 50 years in
the U.S. alone (greatest transfer of
wealth in history)

6. How Successful is Wealth
Transfer?
• M.I.T. and the Economist both report a
70% failure rate in business transfer
worldwide regardless of country or
industry
• “Wealth never survives three
generations” –Chinese parable
• “Riches seldom remain in the same
family for long”
-Adam Smith

7. Possible Causes of Succession
Failure
• Taxation
• Skill of advisory team
• Size/complexity of the estate
• Unexpected health issues or death
• Regional catastrophes
• Economics of the region
• Changes in government

8. What are the Actual Causes of
Failure?
• Inadequately Prepared Heirs 25%
• Lack of Mission 12%
• Advisor Error 3%
– Taxation Issues
– Poor legal planning
– Other

9. What are the Actual Causes of
Failure?
Breakdown of communication and trust
60%
• Reliability – do family members do what they
say they will do?
• Sincerity – do family members mean what they
say, or do they try to manipulate and control?
• Competence – do family members have the
skills necessary to accomplish the job at hand?
• Must have all 3 for trust to exist

10. What are the Actual Causes of
Failure?
Transfer Fails Due to Lack of
Communication!
• Heirs should be included in all
information
• Heirs should be able to speak openly,
honestly and freely
• Founders should not dominate
decisions and meetings

11. Keys to Successful Transfer
Family Meetings
1. The entire involved family group
participates in discussions around
major decisions.
2. Heirs understand their roles, buy into
them and are preparing to fill them
3. Meetings are not founder-dominated
4. The family grows in the areas of
communication, openness, trust,
accountability, team consensus
building, developing vision and unity

12. Keys to Successful Transfer:
Family Policy Manual
1. How will fairness issues be handled?
-perq’s (vacation time, expenses etc)
1. What is the method for dispute
mediation/resolution?
2. What is the mood/health of the
family? Are relationships just as
important as the business?

13. Keys to Successful Transfer:
Education
1. What is the difference between
ownership and management?
2. What unique temperament strengths
and weaknesses do I bring to the
business?
3. How do we treat each person with
fairness (but not necessarily equality)

14. Keys to successful transfer: Dig
your well before you’re thirsty
1. Transfer plans should begin 10 years
before the current owner wants a
change in business involvement
2. The family should work on these
things before crisis forces them to
3. Maintaining health is much more
effective than last-ditch rescue
efforts