DEAR ELIZABETH talks about governance and the challenge of business transition in tough economic times

?Question 1: Cousin Opposites

Dear Elizabeth,

Both my son and my niece are employed in our family business. She's a superstar: great worker, super creative, always motivating others. Sadly, I can't say the same about my son. Since he became a 10-percent owner, his behavior has completely changed. He takes off on hunting trips with no warning and keeps asking me for money. His department's performance has slipped because of his management style, and he’s setting a terrible example. Should I fire him?

- Happy Aunt, Disappointed Mom

Dear Aunt / Mom,

You have an uncomfortable, but not unusual dilemma: The wellbeing of your family, son, and business are important to you. In situations like yours, proper governance and commitments to accountability are the best platforms for the communication needed for a successful outcome.

Governance consists of:

1) The rules and processes that control how decisions are made, for and within the company, and by whom.

2) The types of decisions people in various positions are authorized to make.

Governance gives owners and successors clear rules and marks boundaries. A huge part of establishing the form of governance that works best for your business is clear and candid communication. You can discuss issues you are dealing with now—behavior and use of funds—in a non-threatening way. Once rules are set, both you and your son can hold each other accountable to following them.

Many families also bring in a third party—someone who has worked with families in transition—to keep the process of creating governance on track.

Relationships are critical, but you can't accept from your son a behavior that you wouldn't accept from any other potential successor. It doesn't serve him, your business, or all the people who depend on it. If your son is to become a leader, he must behave like one now. If he can’t, it's better to know that now rather than later.

?Question 2: Tough Times for Business Transition

?

Dear Elizabeth:

My company’s profit margins have taken a big hit from supply chain issues and labor shortages. My son and I had talked about this being “the year” to start turning over the business to him, but it feels like I'd be sending him into a burning building rather than handing him the keys to the kingdom. What do you think?

- Right Place at the Wrong Time?

Dear Place and Time,

Today, many owners question their plans to transition their companies to successors without realizing that these times provide some great opportunities.

Just as we learn more from our mistakes than our successes, successors learn more from managing during choppy rather than smooth waters. In fact, tough times are an ideal growing environment for your son. They also give you a chance to see how he reacts when (not if!) he makes mistakes.

If the value of your company has fallen, you may be able to 1) mitigate your taxes and the effect of the transition on your company’s cash flow and 2) transfer more equity to him than you could when your company value was higher.

Ultimately the timing decision is one you and your son should make together. If you decide not to move forward this year, I hope you’ll start working on a written plan to teach your son the skills you’ve used to grow a successful enterprise and continue to model the leadership qualities your son will need once he becomes the leader.

I'm writing today from beautiful Orange County, in sunny California.

It's been exciting to answer your questions as I traveled for work or leisure during this year's first quarter. I invite you to check my upcoming posts and to follow The Transition Strategists page as we continue to navigate some of the dilemmas owners and successors encounter on their business transition journeys.