From shirt sleeves to shirt sleeves in three generations. That’s the way many family businesses go where there is inadequate attention given to transition planning and a failure to involve the receiving generations in business decisions. With family dynamics playing such a vital part in each individual business, lawyers and consultants are finding that they have to move their practices away from hard, technical law to soft issues like core values and communication.
Terri Heggum-Allen, of Loftus Allen and Co., has a particular interest
in this problem because of the transition problems her third-generation
public accountant and consultancy firm has gone through. Her research
into how other families deal with the problem led her down the path of
teaching families how to have meetings about wealth.
“The first generation makes the money, the second generation manages
the money, and the third generation spends the money,” she says, noting
that this occurs when there is inadequate transitional planning.
“Traditionally the business owner would sit with an accountant and
lawyer in a closed room and decide who he was leaving the business to.
The kids know nothing about it and don’t get what they wanted, so then
go to war against each other. No parent wants to leave that legacy.”
Instead, Heggum-Allen proposes a family circle. She finds that it moves
the focus from the assets of the business and the assumptions of the
asset owner to a focus on the relationship between the parties.
“Parents need to address the question of what legacy they want to
leave, apart from money. People are afraid to talk about money,
especially if they have a lot.
They’ll talk about sex but not about
money,” she laughs. “Often one family member is shouldering all the
responsibility. They think they are doing a good thing and if they
don’t die first, that might be okay. But what will happen if they do?
Do they want to leave a family that’s very capable of carrying on?”
Often the question that brings family tensions to the surface is how to
divide up the wealth when the current generation moves on. “If it’s
cash, it’s not too hard, but business assets are difficult to divide,”
She recently saw this problem in a farming scenario. “Traditionally the
farm goes to the eldest son or the son who farms, but that means he
gets much more wealth than the other children. In an open forum with
all the stakeholders you can explain that it is not a choice between
You explain to the non-farmers that four little farms are
not economic and what would happen in other scenarios. You see if they
can accept being shareholders in the company, perhaps. In that way you
teach them to be stewards and pass the asset on to the next
“In a business scenario you need to ask the family, ‘What do you want
to do with the business? What is your vision, what is your goal?’ There
are different values between different generations, but there are often
a lot of common values. Sometimes the children come up with amazing
plans that the parents never thought of. Then they leave the legacy
that the children can work together.
You could call it Parenting 202.
Sometimes the business owner still has a difficult choice to make, but
he can say that he’s got their input and weighed the pros and cons.
They may not necessarily like the decision, but they’ve been part of
Paul Milne, a family business consultant and a partner of Simpson Wigle
LLP of Hamilton, has also found that, where family businesses are
involved, you can’t just stick to the technical side of the law. “What
we realized some time ago was that applying a tax-driven plan wasn’t
reflecting the best solution for a business family.
We needed to find
methods to get a better understanding of the family dynamics in each
unique situation. Through the consulting process we do the transition
planning. The true legal work is implementation of the transition plan,
whether it be the next generation taking over, a management buy out, or
a sale to a third party.”
Milne uses a process that involves initial meetings with the family
where they address issues of value clarification, family business
history, and genogram work. “There are three value clarification
processes. We work individually with each family member, then with the
family as a whole and then with the business management, establishing,
defining and interpreting values.
It gives everyone a common vocabulary
for decision making, resulting in clarity of thinking and more
understandable decisions.” Milne sees a divergence of values as fertile
ground to begin a conversation.
“We also spend a lot of time on the family business history. We need to
understand the past to determine the future. A genogram is a way of
looking at that family history. We identify triangles of relationships
between family members and find where there are fixed modes of
behaviour, then make interventions to detriangulate them.”
Milne conducts personal, confidential individual interviews and an
extensive review of family and company documents. This results in a
depth of understanding that paves the way for a full discussion on
transition options. Then there is usually a family retreat of two or
three days where different consultants make presentations and the
family delves into issues in depth.
“We look a lot at governance, from the traditional matriarch or
patriarch through to the directors, boards of advisers, and
prospectors,” says Milne. “If the father is the founder, then his wife
and children probably have shares, and their own particular needs and
wants, and he has a relationship with them. He also has a relationship
with the senior executives on the management side. There is a balance
point resting in the founder as he tries to find a balance between the
family and the business.”
This intensive process leads to what Milne calls a respectful
collaborative working relationship in which families can even tackle
difficult issues like addiction and emotional problems. “Sometimes a
family therapist or psychologist is involved. The family trusts us to
know the good, the bad, and the ugly about the family, which means the
lawyers must be very respectful and accommodating and take the trust
placed in them seriously.”
This whole transition planning process can take a year or more to
complete. Afterwards, Milne also endorses ongoing family meetings,
whether quarterly, half-yearly, or yearly. “It is very important to
have a family council, where people can impart their views about the
business so there is clarity with management. Often there is a
disconnect between the values of the family and the long-term goals of
The family council is where Heggum-Allen’s particular version of the
circle process comes into play. She first came across circle processes
in parenting courses, where families were trying to divide the chores.
“This is more professional.
We teach family business governance, where
they set up a family circle and a business circle. The power of circles
is to get people to connect, then they love to agree. But before the
dialogue, you must teach them how to listen. People in families are
good at finishing each other’s sentences because they think they know
what everyone else is thinking.”
She stresses that the parents can make the children far more civil when
they are alive. “If there is no connection between the family members
other than the parents, they have nothing to lose when they go to war.
Teach them a process to meet quarterly as a family. Some talk about
philanthropy, what education they will pay for future generations, what
they want to do together as a family. They start teaching the kids to
read financial statements, how to invest and do budgets.”
Heggum-Allen stresses that the family council should include all family
members who are 18 or over, who understand what confidentiality means.
“Even if they don’t work in the business they have the right to
understand how the business is going to impact on their standard of
living.” She finds that it can be incredibly enriching for families.
“It can actually make the children better friends. It develops family
relationships and makes the transitions smoother.”