Family Business
Family Business

The Founder’s dilemma: planning for a smooth transition.

Succession is when a family office’s ability to maintain fairness and harmony faces its greatest test. Bilal Zein outlines how to avoid the pitfalls.

 

In the biblical parable of the prodigal son, the younger brother leaves home with his share of his father’s fortune and returns penniless. He is welcomed back by his father, to the cha­grin of the elder son who has stayed behind working hard for the family and then has to share again what remains of the wealth.

 

Real or perceived inequality between siblings is a perpetual cause of tension in fami­lies, regardless of wealth. Unequal inheritance based on gender and birth order appeared centuries ago as a way to secure a long-last­ing family legacy. Medieval monarchs turned to male primogeniture to prevent kingdoms being broken up after they died. The equivalent today is the fami­ly business founder’s dilemma of knowing when to pass on the baton. The longer they put off succession planning, the more diffi­cult it becomes.

The most difficult succession dilemmas can stem from complex family histories

The exact involvement of a single family of­fice (SFO) varies between families. Some are involved purely in asset management. Others that have a wider mandate to manage a fam­ily’s wealth, including governance, will be closely involved in succession and should be prepared with the right skills and sensitivity. How should the SFO steer the family through planning and implementing tran­sition while protecting cohesion and long-term interests? How should the issue of di­viding up the business be approached?

 

To prepare for a smooth transition, it is im­portant at the family level to offer children equal access to education and chances to in­tern in the business in comparable posi­tions or pursue their own interests. Strong role models and mentors within and outside the family can help the children develop and understand their aptitudes.

 

The SFO has enough distance to of­fer objective guidance to individuals and blocks of family interests. It can also advise on bringing family members into manage­ment. The SFO should ensure a governance model is in place. However, to preserve the office’s objectivity and avoid becoming too enmeshed in the family’s emotional relation­ships, it usually makes sense to outsource de­sign of the model to independent advisers.

 

Succession is not a moment, but the culmination of a careful process. The family office will prove its true value by en­suring it is prepared, flexible and ready to act promptly.

 

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