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Tuesday, Sep 26, 2023

Looking at Succession Plans From a Different Perspective

When succession plans are usually discussed in family businesses it inevitably begins with the patriarch or matriarch, who typically founded the company. Yet succession plans that exclusively focus from the top down tend to disenfranchise the younger generations that are waiting to take over. In a seminar given last Thursday at California State University, Northridge’s University Club, Fred G. Hathaway, Jr., the vice president of business development at the North Carolina-based Family Business Institute spoke at length about family business succession planning from the bottom up. In his speech sponsored by the CSUN Family Business Center, Hathaway attempted to illuminate the ways in which succession plans can inadvertently alienate younger generations and described the ways in which this can be avoided. Among the first thing that Hathaway claims that family businesses need to understand is the difference between the family and the business. “Families are emotion-based. They focus on relationship. We rely on our families to get motivation and to feel good. Families are all about creating a sense of belonging,” Hathaway said. “However, businesses are task-based and impersonal. They are performance driven. If you don’t get results, you will see consequences.” Another major point that Hathaway made was the Family Business’ Institute’s theory of the four life cycles of family businesses. The first stage is the “wonder” stage, a time when the founder is in his or her 30s. According to Hathaway founders of family businesses are typically technicians who are willing to risk the great odds of failure. He mentioned that 70 percent of all businesses fail. Hathaway said that the next stage of the business cycle is the “thunder stage,” a time of profitability and stability. This stage is often characterized by a juggling of tasks, great stress and a resentful spouse. But it is the final two stages that Hathaway argues are the most crucial to a proper succession plan: the “plunder” and “blunder” stages. The “plunder phase occurs from 55 to 62 and features increased maturity as the company founder snares more of the market share. It is at this time that family businesses may need to transform from entrepreneurial management to professional management. According to Hathaway, the “blunder stage,” is perhaps the most crucial. “The blunder stage occurs when the founder is 62 and above. It is crucial to pass the baton to the next leaders and the next owners. It is here when one sees a huge chance for a failure,” Hathaway said. “Make sure that everyone is on the same page and sharing a common vision and values. Set entry and exit rules, define job descriptions, invest your time and energy into things such as leadership development.” Building relationships In order to avoid failure, Hathaway stressed the importance of building relationships. “Family and interpersonal relationships often get the short shrift in many family businesses,” Hathaway said “You can work on improving the business, but if you don’t work on relationships you’re setting yourself up for conflict that can stop you from optimizing your goals.” Hathaway also mentioned the importance of attempting to understand one’s family, educating the family members on as many details as possible, having constant open discussions and lastly, taking immediate action to enact changes. “Companies need to take immediate action to make positive differences in their life,” Hathaway said. “This type of planning needs to start at least 10 years before one plans to pass on the leadership of a business. You need a formal plan so that there is no confusion when the time comes.” Hathaway’s speech seemed to receive a warm reception from the crowd. “I felt that the speech cut across the board, as it was able to apply to the smallest of family businesses to more large ones. It was definitely useful,” Lina Solins, an office manager at Woodland Hills-based Canyon Design Group, said. Michael Trunnell, a C.P.A. with Santa Monica-based Miller And Co. LLP, also said the information was useful. “Being a C.P.A., I usually look at the numbers, but here we didn’t discuss numbers. We discussed the emotional things about dealing with business and succession,” Trunnell said. “The most important thing I found out is to get everyone on the same page. He showed how to deal with the different emotions and values that people have, so that they can find common ground.” Family Business Center Director David Russell said Hathaway’s presentation was different than most on succession planning. “What was different about the presentation was that it addressed succession from the beneficiary or next generation’s perspective,” Russell said. “Most discussions of the topic address the issue from the father’s and mother’s perspective. This discussion looked at succession from a very underserved aspect of succession planning.”

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