There are many Fs that could be considered regarding family enterprises, the obvious one being ‘family’ itself. But there are four other Fs which have been significant issues during my time advising family enterprises for more than three decades.
Fear: Overcoming barriers to family business succession
Fear is a major obstacle in family businesses. Founders may fear selling because the business has defined their identity and purpose for many years.
Others fear handing control to the next generation, worrying what successors might do with the business they spent a lifetime building.
The key issue is often purpose. Successful founders are driven individuals who need a reason to get up in the morning.
When a sale is contemplated, advisers should help founders identify a new purpose, whether through a family office, investment activities, philanthropy or mentoring.
Those who successfully transition usually replace one purpose with another rather than simply stepping away.
Fear can also delay succession planning. Owners may avoid difficult conversations or postpone decisions until illness or death forces action. The best time to plan a transition is when there is no immediate need, allowing the process to happen from a position of strength rather than crisis.
Fairness: Balancing business ownership and family inheritance
I meet founders who have more than one child but only one works in or is interested in the business.
Naturally, a founder wishes to be fair to all his or her children and often concludes that shares in the business should be given to each child. This can be disastrous.
I encourage founders to think about what is fair for the business. A sibling working hard in the business may resent building value for all shareholders without others contributing.
There may also be differences over dividends, with an involved sibling wanting profits reinvested and an uninvolved sibling wanting to maximise income.
A better way to achieve fairness is not to give shares in the business to uninvolved siblings but instead provide them with cash or other assets. The business will usually thank the founder for giving clear control to the involved sibling.
I encourage founders to think about what is fair for the business
— Mike Kane
Feuds: Preventing family shareholder disputes through governance
Families are often complex organisms and putting siblings into business together following a death can be a step too far.
Resentments can build up where there is a mixture of involved and uninvolved siblings with ultimately divergent views on finances, decision making and the direction of the business.
Often two siblings inherit a business and disputes emerge.
Matters become even more complex once spouses are added into the mix. Without a strong set of governance documents containing an effective dispute resolution mechanism, the feud can rumble on for years, affecting family relationship and the business.
Businesses often flourish once shareholder disputes are resolved. Any shareholder leaving shares to children should think critically about putting in place a strong safety net of governance.
Forced succession: Planning for the next generation and business continuity
A common issue is assuming that a child will want to take over a founder’s business, often without a clear conversation ever taking place.
Experienced external advisers help facilitate discussions, allowing potential successors to voice concerns about responsibility, experience and support. This may reveal a need for broader management structures or additional expertise.
Founders often combine ownership and management roles, and succession planning provides an opportunity to separate these functions. A founder’s untimely death can have a significant impact if no plans are in place.
Every business should have a “will for the business” addressing ownership, management continuity and key operational information to ensure the business can continue to function smoothly.
Summary
Many of these issues interact with each other. The best approach is to plan, tackle issues early and obtain good advice from advisers experienced in these matters.
Mike Kane is a solicitor, partner, head of business law and head of entrepreneurs and family business team at Turcan Connell
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