12 Weeks to Wealth Transition - Are you a Legacy Family?

"Wealth transition begins and ends with relationships.......not excluding a disciplined adherence to acumen."

The academic world has rightly identified that family wealth transition begins and succeeds with an effective operating structure to guide the family enterprise. Whether small or large, old or new, managing the business of ‘family’ day to day and into the next generation takes a coordinated effort connecting emotional, intellectual and creative personalities to establish a unified vision for existence.

In fact, the data prompting this process is so convincing that Universities such as USC Marshall School of Business have launched new academic programs such as the “Family Business Center” of their existing Marshall School of Business.[i]

With over 70% of all family businesses failing to transition from the first to second generation of family enterprise, the academic world sees a much larger impact that warrants our focus on this ‘endemic’ societal/economic issue.[ii]

"Teamwork is about working better, together."

It’s easy to agree with the instruction on ‘how to eat an elephant’ but, as a ‘founder’ myself, the personality of most family businesses make the first steps somewhat daunting.  Saying this, I’ve learned to take it one-step-at-a-time.

Step 1) - Start at the Start: Identifying When to Begin

Simply identifying when to initiate a formal process isn’t always easy unless someone is there to guide the way. There are several key ‘triggers’ that suggest a family is ready to begin outside of ‘shooting from the hip’ or just ‘responding to conflict’ case-by-case. Minor disagreements between family members or a lack of direction to coordinate common family interests are very common key indicators. When the business interests between family cause irritation or argument, family unity or cohesiveness is reduced and quickly breaks down into discouraging family function participation and the barrier walls of communication begin to thicken.

Although above scenarios are often the drivers of action, many managing family members desire to be proactive in planning for and working to insure a stable legacy transition but may not have the tools or personality to organize a plan and bring everyone together on the same page..

Step 2) "If you don't know where you're going, any train will get your there": Being Purposeful and Intentional

The second step is being purposeful with an intent to be more organized and ‘specific’ about the systems of management and strategic planning to make a transition. One of the great keys to preserving family relational integrity is being proactive about several foundations to a good legacy planning process:

1. Setting a family meeting for the express purpose of family legacy development;
2. Determining the right legacy coaching partner;
3. Establishing a Family Counsel for family legacy planning;
4. Signing ‘buy-in’ statements with all family members committing to a process;

Step 3) "I Need Help": Establishing a Relationship with a Legacy Coach

The most successful sports figures in the world have coaches to take them to the next level. In fact, the more detailed the coaching is by category, and the better the coach, the more successful both the teams and the players become. Individual talent is by no means a replacement for a coach who guides and works on the weak areas of a players' ‘game’ as well as seeks to strengthen and magnify the players’ giftings.

Think of your favorite coach in sports or counselor in college. Generally they are the ones that helped you identify what you needed to accomplish to be more successful and placed pressure on you at the right times and areas for you to grow and succeed. No where is this more important that developing a legacy plan for a family business enterprise.

"Coaching is sometimes a lamp upon the path of growth to show imperfections....before small issues become glaring dysfunctions."

Step 4) How Will We Conduct Ourselves?: Developing Core Principles

The foundation of a good family economy is based on the foundation of principles. One of the first common exercises in creating a legacy plan is establishing the core principles of conduct, business philosophy, the business mission and the commitment to the family. Without common ground agreement, even the slightest disagreement between partners or family members or spouses can cause a stifling of growth or communication. Breaking the topics down into individual documents to begin the process of ‘structuring’ a plan is a first major step forward in formalizing a Charter or Constitution.

Step 5) What Does the Process Look Like?: Establishing Mentor Families

Having intermittent communication with a family in the community with similar background or profession can be both encouraging and transformational in the process of formalizing a legacy. If possible, a good legacy coach with either seek to find a legacy family or encourage communication with a family that you may know who has already developed a plan. This can be an indispensable tool to rely upon in the process.

Step 6) Reviewing Operational Integrity of the Family Business

Open review and coaching of business process helps to identify many critical areas to improve in the process of building the family legacy. Discussion and potential improvements especially in regard to family operational policies, or lack thereof, are instrumental in the process to refine internal policies.

Step 7) Determining if other professional assistance is needed;

Often times, internal disputes or other personal challenges can wreak havoc on a family business and sometime make the thought of organizing a painful dream. If any major issues with one family member or another is causing regular irritation then an outside professional maybe advisable beyond what the legacy coach can provide. This can be dependency issues or other internal discipline problems that warrant a higher level of professional help.

Step 8) Refining Operational Integrity & Internal Disciplines (There is always something)

During the process, weaknesses will show themselves curing the legacy process. Weaknesses don’t always show themselves because of a glaring dysfunction but quite often in the subtleties of small holes in the fabric of the company. Coaching is sometimes a lamp upon the path of growth to show imperfections that the owners and partners are purposing to repair before small issues become glaring dysfunctions. 

Step 9) Purposing through relational challenges

No relationship is free from strains or situations effecting communication or productivity from time to time. Setting guidelines for conflict resolution are an addition to the refinement of policy and procedure where both elements, working in unison, come together to smooth out the bumps of growing pangs and transition from one generation to the next. Learning how to effectively, honestly and graciously hold family accountable to process, willingness for discipline and character development is a key component to crossing the 'finish line'.

Step 10) Establishing the Common Vision and Drafting Form of Governance:

Insuring that each family member’s ‘personal well being’ is being considered during this process is of vital importance. A common vision cannot be formed and rarely agreed upon when one member or another does not feel that they are recognized or their thoughts are part of the plan. Each step along the way creates a ‘crescendo’ effect where one strength can be built upon the other. Ideas have consequences within a family heritage and the strength of a family legacy is deeply dependent up the establishment of common vision.

Synthesizing each family members' individual thoughts of success and happiness are a critical component to total ‘buy-in’ by the family members and without which there is a ‘chink’ in the armor of the family plan.

Step 11) Family Business Governance and Advisory Boards

Although a formal body of governance outside of the LLC or Corporate structure of the business may not be ‘necessary’, Operational Boards, Family Committees and advisory boards can be instrumental in guiding decision making process in a ‘governmental’ form rather than the moods of the family. In William Hawfield’s “Game-Changing Advisory Boards”, Bill outlines the financial benefits that Advisory Boards can bring to a family operation. [iii] Determining whether or not any legal business changes are in order may or may not become apparent during the process of legacy planning but there is no more beneficial of a time to consider the review of operating structure. Many times, the process simply opens up for discussion what has already been either desired or referenced in the past by one member or another.

Step 12) Drafting & Finalizing Family Constitution

Ultimately, the completion of the family legacy process should culminate in either a Family Charter or a Family Constitution. Many times, both are nearly identical in details or categories but many prefer the Family Constitution as it connotes a "formally and thoroughly developed document to govern the affairs of a group of individuals with common interests by which each member, both of the current and future generations, have a fully vested interest to insure a successful operation.”

About Nick Karavidas: With a passion for business development, Nick's focus is coaching and development of family businesses through online and one-on-one Legacy coaching programs designed to insure successful generational transition of family businesses and family wealth.

Watch this free Legacy Tutorial at https://nickslegacy.com/legacy-video or You can reach Nick directly at [email protected]

[i] https://www.marshall.usc.edu/programs/executive-education-programs/family-business-program/family-business-workshops

[ii] https://www.bizjournals.com/philadelphia/blog/guest-comment/2014/09/the-three-big-reasons-family-businesses-fail-and.html

[iii] https://www.amazon.com/Game-Changing-Advisory-Boards-Leveraging-Sustainable/dp/1478221135