This week I am attending the Annual Global Conference of the Family Firm Institute (FFI) in San Diego. According to its website:
FFI is the leading association worldwide for family enterprise professionals and the organization of choice for the advisors, consultants, educators, and researchers who help perpetuate transgenerational family business wealth.
FFI is a great resource for consultants, academics who study family businesses, and members of family businesses.
Among the sessions I attended was one entitled “When There’s An Empty Seat At The Table.” Led by a lawyer and a family business consultant, the session focused on two case studies in which the session leaders had been involved.
The first case dealt with two brothers who had built a successful construction firm. It now included the oldest son of one of the brothers as COO. The son had worked for the company for many years and was the logical choice to be the next leader of the company.
Tragically, the COO’s father died of a massive heart attack at 57 leaving his uncle in charge. As the family prepared for the funeral, they found a buy-sell agreement that had been executed two decades earlier. The agreement gave the surviving brother the option to buy his deceased brother’s half interest in the company for a fraction of its fair market value.
On the advice of his attorney, the surviving brother enforced the buy-sell agreement. His nephew’s career was over and the widow of the deceased brother began litigation to overturn the agreement.
This case raises many complex and troubling issues, including the wisdom of calculation used in the agreement to establish the value of the company.
My focus after reading and discussing this case, however, is not on whether the brothers were wise to adopt the terms of the agreement. They could be commended for at least having the foresight to have an agreement notwithstanding its flaws. My concern is that the arrangement between the two men was apparently never discussed with their families.
The contents of the agreement, at least those detailing the succession of the business, should have been shared. At the very least, if they had know prior to the death of one of the brothers, the families could have prepared themselves for options established by the buy-sell, no matter how much they might have disliked them.
No plan can reach its full potential if it is not communicated to those who will be most effected by it. Ultimately, the failure to discuss their agreement tore the families of the two brothers apart.
Succession in any company, family owned or non-family owned, can be a delicate subject. Nevertheless, handling the topic with some reasonable measure of transparency is important.
If your company is struggling with succession and how to do it well, please feel free to contact me.