THE world is changing; entrepreneurs must do two things simultaneously–brace themselves for the post Covid-19 recovery and embrace succession planning. The latter is key to achieving a long-term legacy in the enterprise. When planning is done early, it captures the whole gamut of any founder’s aspirations: Defines the entry of family members in the business, determines how dividends are shared and distributed, trains family members aspiring to sit in the Board, educates future shareholders on their roles and responsibilities as new stewards, orients in-laws on the do’s and don’ts when in and out of the business, vets future leaders and sanctions incompetent family members and misguided successors. A major factor that’s included in the planning phase covers various models for tax mitigation, vesting agreements, trusts, wills that helps early on to determine the ownership stakes of family members.
What is legacy?
Succession planning also prepares the enterprise should there be issues related to sudden death, incapacity, misconduct and abrupt exits like family members migrating to another country. When triggering events happen, it is during these unpredictable times where the business needs to have the ability to navigate, manage and remain stable. Succession planning has several benefits, and foremost is legacy building. Playwright Lin-Manuel Miranda expresses it so eloquently: “Legacy. What is legacy? It’s planting seeds in a garden you never get to see. Your children are your seeds and as you set in motion succession programs, they embrace your values of hard work and unity including learning best practices on management and leadership. The bonus is you will see them perform all throughout the entire succession journey and there is participation of every family member in all aspects of the process. Transparency and openness breeds integrity, respect and harmony.”
To continue with the succession article I wrote last week, allow me to share several powerful and time-tested succession steps to ensure family unity and wealth preservation with an eye towards the lasting legacy of the founder.
1. What is your priority: Business family or family business model?
The key is determining what business model to follow. A business family focuses on a mindset meant for the Greater good or doing what is best for the business. On the other hand, a family business is usually fixated on conflict avoidance or the mantra of “Do whatever to avoid conflict within the family.” Having an undefined, unclear, founder centric culture mixed with confused, entitled family members is a recipe for disaster. It is already tough managing the business in itself, and mixing emotions and entitlement in the workplace can ignite unnecessary conflict among family members.
No matter the size of your business, the leader and the family members must collectively make a very important choice, should they prioritize family over the business or vice versa? The Philippine-based century-old Aboitiz and Ayala Families are wonderful examples that we can emulate. They decided generations ago to pursue a Business First Model without compromising their respect and love for family.
2. The lines of communication must be open 24/7
I cannot emphasize enough that talking is the most obvious prescription to promote harmony, yet it is the least recognized tool in family business governance. Many families do not know how to communicate! It is an important risk management value that is powerful and predictable but sadly rarely levered. When family members stop talking, they stop solving. In a family business, issues never stop. Family members must establish clear and regular methods of communication. The key is to keep on communicating and families must develop a system dedicated to having these important conversations done on a regular basis. In my coaching work, I encourage and impose rules that family members must come together at least every month to talk, be they family, business or ownership issues. It should be open for every adult member of the family whether involved in the business or not.
To be continued…