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Playing Fair: Considerations for Succession Planning With Your Children

18/05/2016


​​​​I am afraid of treating my children unequally, but want to be fair to everyone. Could my children be Co-Presidents?

Do you want to treat your children fairly or equally? Are you familiar with the difference between these concepts and if forced to choose, which one would rank higher in importance than the other? No good parent would wilfully want to treat their children differently with malicious intent. Yet, even with the best of intentions, that is how it may be perceived by the children if communication is not truthful, respectful or timely.

What are good principles to keep in mind when dealing with these tricky situations?

  • Do not hesitate to call in outside help. You likely have an awareness of differences in the children which are hard to verbalize, making it difficult to truly ensure you are acting out of objectivity.
  • Establish your evaluation criteria for the readiness of the children, before starting succession or transition conversations with them. When and if relationships become frayed, do you have a clear list of principles to fall back on?
  • Have you articulated clearly what is best for the business? Again, this needs to be done before having any conversations with the potential successors.
  • In what may well be required to be a supreme act of statesmanship, be prepared to spend more time laying out the criteria for decision-making, than what you consider the best results for the questions to be. Take your time.
  • There is a simple rule which may be very helpful: how would you have set such evaluation criteria if none of the individuals involved were your children? Establish a normal, a middle ground that would work regardless of the players being family or not. Document it, write it out, mull over it. Just watch how useful it will be to get back to this.
  • Remove the burden of feeling that everyone must be accommodated in the business if doing so would be detrimental to the business. This is not a good time for trading favours, handing out consolation prize positions to those who are not capable of being involved.
  • As a parent, you have to love and respect your children equally. But this does not mean they have to all receive equal responsibility from the company. This may well put the company in a position that is not optimal and set a child up for eventual failure. Worst case, both the child and the business may struggle.
  • Never, ever, offer responsibility, ownership or a key position to individuals who cannot handle the role, simply because you feel backed into a corner by a potential reaction or displeasure.
  • As a business owner parent, you have to treat your children fairly. This requires honest conversations, within a relationship of openness and respect, even when it leads to inequality.
  • Reward the children who bring key business acumen, energy and drive, as you would any strong future business partner. Unless, and there have been cases, where they decide to forfeit some of this benefit.
  • Tread carefully. Keep open communication after careful planning, once you roll out your plans to the family members.
  • Continue differentiating between the moving parts which you are actually handing down to the next generation. Is it ownership a management position a leadership position value or guaranteed employment? Be clear, it may be difficult to handle all of these often conflicting priorities in one simple solution.

Some final advice if I may: the whole process and the long-term success of your family business will only be secure when the right people are seated in the right positions in the company. It will not only be good for the company, but also your family and non-family management.

For more information as to how you can successfully transition out of your business, contact Eben Louw, CPA, CA at 604.870.7413 or [email protected].