In 1988, Jack was thrust into the leadership position of the family business his father started in the late 1950’s. At the time Jack took over the family business there was only one dealership and approximately 65 employees. Over the years, the business had become highly productive and profitable in large part due to his father’s incredible work ethic, customer focus, business savvy and knack for attracting quality employees. Jack’s father was a humble man who attributed much of his success to luck, good fortune and being in the right place at the right time. “Timing is everything” was a phrase Jack’s father used frequently. From a business perspective, there very much could have been some truth to timing and being in the right place at the right time but for Jack, timing could not have been worse!
You see Jack was only 34 years old when his father died in 1988. Jack had limited experience, interaction and communication with his father regarding business philosophy and management of the business. To make matters worse, Jack had two siblings who also worked in the business and felt they were just as capable of leading the business. However, Jack’s father did not express who he wanted to lead the business in his absence. To his father’s credit, he did have a Will and Trust that was designed to provide for his wife, Carol, and subsequently treat all three of his children equally. However, there were no clear directions or instructions regarding what should happen to the business. Unfortunately, Carol was placed in a very uncomfortable and vulnerable position, in that, she had a limited understanding of the business and personal finances. Furthermore, she had to choose which of her three children should lead the business in her husband’s absence. Clearly Carol was in a no win situation as she was sure to disappoint one or more of her children. Which is exactly what happened! Jack was chosen as his father’s successor and one of her children harbored resentment for many years.
Contrary to popular belief, the above scenario is much more prevalent than you might imagine. Many Dealers have developed estate plans designed to minimize inheritance taxes but neglect to take into consideration other critical succession issues such as who will end up with voting control and who will become the Dealer Principal. In some instances there is a well thought out succession plan in place (some more well documented than others). However, rarely is the succession plan ever communicated to family members. A logical question is, why? Here is a brief list of responses Dealers have shared over the years:
“I am just not ready to tell my children.”
“If I choose one of my children to be my successor, I will disappoint the other children.”
“My children are too young and would not understand.”
“We are afraid sharing our plans and net worth with our children as it could demotivate them.
“We do not want to create trust babies.”
These are reasonable and valid concerns that must be respected but eventually communication should take place in an effort to avoid a surprise after your demise. Surprises may be fun for birthday parties but not very good when it comes to succession planning for family businesses.
So when is the right time to discuss your plans with family members? The answer: while you are alive and periodically as plans inevitably change. This is easier said than done because there never seems to be a good time and each family is unique. Some family members are capable of handling personal, business and financial information without it impacting their drive, ambition and commitment. Others are not. Age and maturity play a big factor with the timing of sharing this information. Sharing your plan with family members while you are alive provides an opportunity for you to explain your plan and answer any potential questions family members may have. There is always a possibility a child or family member may not like your plan however, there is a higher likelihood they will respect your plan since they heard it directly from you.
When Jack took over the business following his father’s death, he had his sights set on growing the business. And that’s exactly what he did! Jack is now in his mid-60s, the dealer group presently represents multiple franchises and has several hundred employees. Experiencing first hand how difficult and trying it was for him, his mother and his siblings following his father’s death, Jack chose to proactively communicate his plan to his children approximately two years ago. The family was relieved to know there was a well thought out plan and understood how the plan impacted each of them individually. Since that time, Jack contracted cancer and is fighting for his life. However, he has peace of mind his family knows and understands his plan. Does your spouse know your plan? Does your spouse understand what their sources of income will be? Does your family know your plan? Do your employees know your plan? Have you done all you can do to protect the valuable franchises you represent? As Jack’s father was fond of saying, timing is everything.” Perhaps the time is now for you to proactively develop your succession plan and determine how and when you will communicate your plan to family members and stakeholders. Family relationships and business succession are worthy of protecting!