How does one succeed at managing, growing and transitioning a business and wealth while caring for the family and its legacy?

Whether you are a founder or a next-generation owner-operator you will be confronted with  this age-old question.

Here are the Top 10 Steps that can help you with this question.


Define the Legacy and the Future of the Business

Many successful families create legacies. In families that manage multigenerational ‎family businesses, legacy is often deliberately built, enhanced and passed from generation to generation. For family business owners, legacy is about more than what it means to be a member of the family. It extends to the role the family business plays for its employees and the communities in which it operates.


Know the Value of Business

Knowing the value of business is as important as knowing the value of any other asset the family may own, including real estate, investment portfolio, etc. Determining the value of the business is the starting point and an integral part of any planning process for capital policies, distributions, buyouts, transfers, successions, etc.


Establish Capital Policies

Capital policies are an important component of any business. For family businesses, these policies address important topics like allocation of capital, permissibility of raising equity and resultant ownership dilution, leverage, selling and redeeming shares and shareholder distributions. As an advisor, capital allocator, and a private company, our firm has a deep knowledge of working with family businesses to frame these policies.


Systematize Distributions to Meet Family Liquidity Needs

Many family businesses have family members who own shares but do not work at the company. As such, it is important to set policies for generating liquidity for shareholders and communicate them effectively. Family shareholders want to know if they will receive distributions and if they can redeem or transfer shares. They also want to have a voice in return expectations inherent in owning shares. Successful businesses often extoll the virtues of long-term ownership for family members and how patient capital can benefit the value of the business and family over time.


Establish Governance, Advisory Boards, and Systematic Communications

As family businesses grow over time, the number of shareholders across generations tends to increase. In many cases, the majority of family members who own shares do not work for the business. Yet, as family members and shareholders, many want to know what is transpiring at the company. They also have a right to access shareholder information about their ownership interest and the performance of the business. For that reason, communication with family members who do not have a role within the company is key. Many family businesses seek external objective advice from independent parties or family members and create family advisory boards or a board of directors. The benefit of receiving impartial advice not only increases communication between the family shareholders and the company, but also may result in higher productivity and happiness.


Balance Competing Interests

Most companies at some point face the challenge of balancing competing interests among stakeholders, and family businesses are unique in that the family is one of the key constituents. While competing interests may be inevitable, creating a protocol for addressing them and encouraging communication among all relevant groups is paramount to resolving issues. When consensus is unattainable, engaging outside parties to facilitate discussions and act as an objective sounding board can lead to resolution.


Adopt Employment Policies

All businesses that reach a critical size should have employment policies. For family businesses –particularly those owned by large multigenerational families – employment policies are more nuanced. One critical consideration that family businesses must address is who from the family will work in the business and the parameters for doing so. Setting an appropriate policy for the business and family and communicating it leads to companies that employ the best-suited people in the most appropriate roles. This also fosters an understanding of what it takes to work for and succeed in the business. 


Create Succession Plan

Most enduring businesses consider and plan for management succession. For family businesses, this topic can be particularly pertinent, especially where management is deciding between multiple family members or a nonfamily member as the heir apparent CEO. Management succession for family businesses tends to have an additional level of complexity because it must balance the traditional challenges of having a successful plan with the family dynamics inherent in a family enterprise. Family businesses also face the challenge of ownership succession. In many cases, the next generation of owners may not be employed in the company, though they will be shareholders. This can lead to issues in the absence of a clear articulation of long-term objectives and a carefully considered set of share ownership and transfer policies. 


Establish Strategic Estate Plan

Estate planning plays a vital role in the perpetuation of a family business. Considering the rapid change in business dynamics, if family business owners don’t update their estate plan, it becomes old or outdated after a few years. Adding to this, circumstances in families and relations among family members, business matters, net worth, etc., tend to change irregularly or over a period of time. This is when estate planning comes into the picture. It doesn't matter how complex an estate plan is. It's better to get a customized estate plan as long as one's legally competent. It will also ensure safe passage of family business from one generation to another without any dispute that may further damage the prospects of growth.


Build a Support Team

Family businesses benefit meaningfully from having a network of external advisors. Many families find that investing time to identify and nurture relationships with other families, contemporaries and professional advisors is of great benefit and value to the family and the business. 

Asking the right questions and challenging hidden weaknesses

Defining Legacy and the Future of the Business

  • What is the current generation’s vision for the company as it relates to future generations? Do the current and future generations share that vision?
  • What is/are the purpose(s) of the business for the family? Why does the family own the business?
  • What are the primary goals for keeping the business in the family? Is it creating or continuing the family legacy? Providing jobs? Creating wealth? Benefiting the communities in which the company operates?
  • How is ownership or management outside the family viewed?
  • What are the values and principles that should be driving family and family business decision-making?
  • How did the family arrive at these values and principles, and have they committed these matters to writing?

Capital Policies

  • What is the process for assessing the capital needs of the business regularly? Who owns that process internally?
  • How does the business communicate those capital needs to the family ownership group?
  • How does this process dovetail with family distribution planning?

Distributions and Family Liquidity

  • How have the family’s expectations for returns and distributions been set?  Is it well understood across the family?
  • What share redemption mechanism is in place to facilitate orderly redemptions? How are shares valued, and how often?
  • What is the role of the family in setting debt levels, risk parameters, etc., for operation of the family business?
  • Do the current leaders discuss liquidity openly with all shareholders?

Governance, Advisory Boards and Communications

  • Who decides on the structure of the board of directors? How are directors identified, recruited and approved? How do the board of directors and the family owners interact?
  • What consideration have owners given to creating a family council (and perhaps a family assembly) to organize family ownership and to potentially represent the family to the board of directors?
  • What is the communications policy that governs what company information is shared within and outside the family?
  • Does the family have regular family meetings? Who decides who attends?
  • How does the business engage family members who are not employed in the business?

Balancing Competing Interests

  • How is conflict typically handled within the family, concerning ownership and/or management of the business?
  • What mediation practices have been developed for resolving conflicts?
  • What has the family done in terms of engaging third parties to facilitate conflict resolution or improve communication and decision-making?

Employment Policies

  • Who makes decisions about hiring and/or promoting family, and what are the criteria for doing so?
  • What policies are in place regarding hiring family members?
  • What mechanism is in place for giving and receiving honest feedback to family members?
  • How are family members recruited, trained and treated as employees? Are mentors assigned?

Succession Planning – Management and Ownership

  • Upon transition, how does the present management and ownership model impact the success of the next generation of family managers and owners? Nonfamily managers?
  • What succession planning alternatives are being considered, if any?
  • What discussions around management and/or ownership of the business have been had with the next generation? How are family members being prepared for leadership roles?
  • How are leadership succession decisions made? Is the process well-understood by both family and nonfamily leaders?
  • Is there a process to educate/train rising generations of owners/leaders?
  • What guidelines have been established for stock ownership and ownership transfers?

Building a Support Team

  • Who in the family or its professional network can owners confide in to discuss the business, their family, their family’s wealth and the intersection of these items?
  • How confident are owners that they have access to the expertise and skills necessary to be an effective owner and/or operator?
  • How can owners identify individuals who can provide a well-rounded perspective on them, the family and the business?
  • What are any advisors’ interests? Are fee arrangements well-understood?
  • Have any conflicts of interests been discussed? How will they be mitigated?
  • What service providers have owners engaged for assistance in navigating both the business and the family?