Will your family business survive the death of its founder?


By Kathy J. Marshack, Ph.D., P.S.

The death of the founder of a business can take many family businesses by surprise. A strong willed entrepreneur takes advantage of an opportunity, builds the business to success, then dies leaving the family totally unprepared to continue the business. The business gets sold and the family legacy dies with the founder.

Family business owners are notoriously poor at planning for the future of their businesses. They literally act as if the founder will never die. They don’t think about the possibility even when that person is in his 70’s or 80’s. As a result, most family firms don’t live beyond the first generation.

Death is not an easy subject to talk about; nor is retirement, especially for rugged individualist and entrepreneurs or their families. But it a subject that needs to be addressed by all members of a family firm. Is the business merely a reflection of the founder? Is it his personal property? What part do other family member play, shareholders and stakeholders alike? Who will run the business after the founder steps down? When will the founder step down?

Answering these questions and others leads to the development of what is known as a “succession plan.” Even though it is tough to plan ahead to the day when you are no longer running the business you founded, it can be exciting and rewarding to know that your creation will live on and prosper under the guidance of a trusted family member. Equally rewarding is knowing that you have provided for your family.

While it is too late to work on a succession plan after the death of a founder, it is never too early to plan, even if you have no successor or just started your business or your kids are too young to even work yet. Succession plans can evolve over time to fit the changing needs of the family or the business or both.

At first, you plan may be nothing more that the understanding with your spouse that you both want the business continued after you retire. The initial plan my include provisions for how to groom the successor when one is chosen, for example. The key ingredient in all plans is that the stakeholders are communicating with each other about the need and that you are looking towards a healthy future.

When considering a succession plan it is best to enlist the aid of professionals who are knowledgeable about the unique needs of a family firm. Attorneys and CPAs can assist you in addressing the issues of estate planning. Management consultants can advise you about the most desirable business structure. Perhaps it is time to look at professional management, for example. Or perhaps your niece is better suited for he presidency than you son.

The toughest questions that need answering about succession, however, cannot be answered in an attorney’s office. The founder and his or her family need to break down the old barriers to talking about death and retirement. All of the old “skeletons” in the family closet need to be cleaned out. Emotions, biases, age-old grudges need to be vented, explored and settled.

Until the family can talk openly and honestly about how they feel about each other, they cannot make a reasonable decision about how to run the company. Like it or not, the family system or style is what really dictates how things will go in business. So understanding your family system and improving it contributes to a healthier business.

Just as with legal and financial decisions, the emotional or psychological aspects of succession planning usually require the assistance of a professional. Psychologist trained in the dynamics of families as well as the workings of a family business are best suited to guide you through the emotional process of succession planning.

The psychologist’s job is to meet with all stakeholders individually and in a group to discuss absolutely everything that can affect the succession plan. This is not a time to be secretive. The future of the business and you livelihood depends upon open and honest communication. Families who don’t plan ahead not only lose control of the business, they often have a myriad of other problems associated with the loss of the business, such as infighting, divorce, alcoholism, depression, etc.

A psychologist understands these kinds of “people” problems that are intertwined with business decisions. Their goal therefore is to help you create a plan that suits two purposes, 1) To ensure the success of the business, 2) To ensure the health and happiness of the family.

In order to accomplish these important goals family members need to face the tough issues that most other people avoid.