The difficulties around family succession in a business are well documented. Key issues include the capability and goals of the succeeding generation, relationships within the family, time frames and process for management transition and of course financial remuneration and buyout terms. Turnarounds in combination with a family succession creates a very complicated mix, perhaps even a witches brew with an amplification of the the problems with respect to both processes. If you get it wrong the ramifications are not only financial, it can cause relationship breakdowns within a family that are sometimes never repaired. Based on our experience, here are some thoughts on issues to keep in mind when trying to manage both a turnaround and family succession.
Do you want to risk the family wealth to fund the turnaround?
The wealth existing in a family has often been created over a long period and in different circumstances to those currently. Perhaps the founders when they set up the business were more entrepreneurial and because of their passion for the business were always willing to risk their personal money. A succeeding generation may have less of a risk appetite, more outside personal financial commitments/debts to manage or not be involved nor as passionate about the business.
Family members should all ‘check in’ with each other before committing both their personal and family money on funding a turnaround. A turnaround is always a high risk process and therefore there is a significant risk that new monies invested may never be seen again leaving everyone short changed.
Don’t let the desire of the founder for a “legacy” drive turnaround decision making.
Turnarounds need to be focussed on hard commercial decisions which are often at odds with for instance the strategic decisions, geographic locations or product lines that the founder has established. The succeeding generation needs to make the hard call as to whether they can/want to fix these “legacy” issues.
Taking prevalence in the decision making must be commerciality and the goals of the succeeding generation, not the legacy of the founder ie the succeeding generation should not have imposed on them problems which have been created by the founder and which they don’t want to inherit!
Does a family member need to be exited from a role or the business for the turnaround to succeed?
This can be a very difficult issue. Company’s often have people in positions because they are family members which are not suited to their skill sets. Exiting these people is problematic for family relations especially when they directly or indirectly have an ownership interest while there are always less tangible benefits from having family members involved in a business such as positive working relationships. Perhaps decisions in this regard are “boiled down” to .. Is the family member working in the company placing the turnaround at risk? If the answer is yes then what is required is obvious.
Buyouts leaving too higher debt burden.
A key potential downside of all of the issues discussed above is that a flawed turnaround decision making process then leads to the business and family members then having to carry and amortise a debt burden which is too substantial and which they feel should not be theirs. Family stakeholders should remember that debt can be an albatross around the neck of both the business and family harmony!
If you would like a no obligation, confidential discussion about turnaround management and executive solutions, please contact me at svertullo@integralfinancial.net.au.