That objectivity can be hard to come by. “Too many people are
too wrapped up in their business and they get (sidetracked) by
the personal goodwill invested in their business,” said Larry Klar,
managing partner of The Succession Fund, a Toronto-based
company that offers succession financing for businesses.
For business owners it can be both hard to let go and hard to
deal with the tough questions. Children have their own, and different, concerns. “Parents are not willing to go from the business
to the nursing home, and children are not willing to work for
20 years with no return,” said Gerard Fitzpatrick, a partner with
Fitzpatrick & Company in Charlottetown, the first accounting
firm on Prince Edward Island that is owned and operated by a
father and son.
Children also face a unique burden to take over the helm, he
added. “The business is often in the family for many years. Chil-
dren can feel pressured to continue the tradition without any
pressure from parents.”
Owners should not assume children want to play a role in the
company, noted Lynch. “That’s a common mistake. You have to
be clear with the family — what are the goals for each member?
One family member may just want to extract cash as a share-
holder; someone may want to manage the business. It’s all OK.”
Family-owned firms stand apart from other types of compa-
nies—and face both opportunities and challenges that are
distinctive, Grant Walsh, co-founder of the KPMG Centre for
Family Business in Ottawa noted in his book Family Business Suc-
cession: Managing the All-Important Family Component. “Many of
what are considered family business benefits can quickly turn
into liabilities or roadblocks to the business and can create ir-
reversible damage or conflict within the family if not effectively
managed.
“Typically,” he added, “as the family business moves along
its generational timeline, more family members are actively in-
volved in the business and more family members have an interest
in the activities of the business.”
That interest needs to be spelled out. Two elements are criti-
cal to doing this: an advisor and a succession plan. The former is
more easily found than the latter.
“These are hard discussions to have. If you are a business, you
need an advisor to talk you through the process,” said Fitzpat-
rick, a chartered accountant. “(An advisor) has no axe to grind
and can talk to ma, pa and son or daughter.”
That talk will invariably include looking for answers to thorny
questions. “It’s often the financial or legal advisor who addresses
the elephant in the room,” noted Klar. “Advisors are increasingly
the ones saying out loud the delicate and difficult things that
need to be said for the health of the business.”
“It is a very complex area,” he added. “Some guidance is needed.”
What is necessary is a line distinguishing family from business.
“You need to separate out the management of the business from
the management of the family,” explained Lynch. “A lot of own-
ers put in place an advisory board that includes a third party who
will ask the tough questions. The role is as a sounding board.
“On the other side,” he added, “a lot of families put in place
family councils. It’s a formal sit-down every quarter to discuss
issues like finances, values and charitable donations.”
What many companies do not have in place is a succession
plan. According to new research conducted by Heidrick &
Struggles, a leadership advisory firm based in Chicago, and Stanford University’s Rock Center for Corporate Governance, more
than half of companies today cannot immediately name a successor to their CEO should the need arise.
The survey of more than 140 CEOs and board directors of
North American public and private companies revealed critical
lapses in CEO succession planning. “Not having a truly operational succession plan can have devastating consequences for
companies — from tanking stock prices to serious regulatory and
reputational impact,” said Stephen Miles, vice-chair of Heidrick
& Struggles.
The survey found that while 69 per cent of respondents think
that a CEO successor needs to be “ready now” to step into the
shoes of a departing CEO, only 54 per cent are grooming an
executive for this position. “This statistic, combined with the
finding that more than half couldn’t name a new permanent
CEO if the current chief became incapacitated tomorrow, is a
total disconnect,” said Miles. “It’s hard to imagine that the CEO
would be ‘ready now’ if he or she is not being groomed today.”
Only 50 per cent of companies surveyed have a written docu-
ment detailing the skills required for the next CEO. That figure
is low, said David Larcker, a senior faculty member of the Rock
Center for Corporate Governance. “If nothing is written down,
how do we know that the board really understands what these
skills should be?”
The lack of succession plans is not surprising, said Klar. “Most
people do not build their business with a sense of how they might
sell it one day — but they should be.
“Not having a succession plan is a problem,” he added. “What
if you don’t wake up tomorrow? That is a very difficult question,
but it needs to be discussed.”
One reason the discussion may be deferred is the impres-
sion business owners have about succession planning. “A lot of
owners believe succession planning is a one-time event,” said
