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Succession Planning for the Family Business Best Practices and Strategy. Presented For: Independent Financial Brokers May 11, 2009 NOEL Z. GOLDEN and

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succession planning for the family business best practices and strategy

Succession Planning forthe Family BusinessBest Practices and Strategy

Presented For:

Independent Financial Brokers

May 11, 2009





VAN01: 2618838: v1

what is succession planning
What is Succession Planning?
    • time and the inevitability of change
    • life cycles of a business, a family and individuals
  • GOAL
    • Passing the Enterprise on profitably and in good condition to a new generation of leaders.
    • Succession is not a transaction or a single event – it is a process.
    • “Handing over the Keys”; “Passing the torch”
    • Process not always rational and planned, often muddled, ad hoc, spontaneous and irrational
    • Encourage Enterprise to consider long range planning
continuity and succession
Continuity and Succession
  • Generational transition of power transfer
  • Senior Generation  focuses on Continuity
  • Junior Generation  focuses on Succession
  • Start conversation about continuity and then progress to succession
  • Difference between “Passing the Baton” and “Taking the Baton”
  • Must coordinate the management and ownership transition
  • Creating a legacy and passing a dream, not just transferring a business
failure of transition universal
Failure of Transition – Universal
  • “A family moves from rags to riches to rags in three generations”
  • “Shirt sleeves to shirt sleeves”
  • “Clogs to clogs”
  • “Rice Paddies to Rice Paddies”
  • “Dalle stalle, alle stelle, alle stalle”
    • From the stables to the stars and back in three generations.
  • “Fu Bu Guo San Dai”
    • Wealth does not pass three generations.
  • “Erwerben, Vererben, Verderben…”
    • Earn it, bequeath it, burn it
key succession challenges
Key Succession Challenges
  • Selection criteria for successor
  • Choosing a leader
  • Timing of management and ownership transitions
  • Who chooses the new leader(s)
  • Letting go of power
  • Managing the transition
  • Tax and Inheritance issues
  • Fair vs. Equal
  • Unresolved family issues
identifying target clients
Identifying Target Clients

Target Clients

  • Private companies (including private holding companies of public companies)
  • Trusts
  • Family and non-family owned enterprises
  • Partnerships, joint ventures
  • Trusts
  • Not-for-Profits
  • Charitable Foundations
target client profile
Target Client Profile
  • Shareholders, partners, joint venturers (family and non-family)
  • Owner-manager with adult children (whether active or inactive)
  • Owner-manager wishing to retire/change lifestyle
  • Client considering exit strategy: inter-generational transfer, transfer of management responsibilities, sale
  • Client who appears unable to formulate clear estate planning instructions
  • Client who appears reluctant to implement estate plans
  • Client with whom relationships need to be strengthened
  • Second generation (siblings/children), (current owners and prospective heirs) who need to develop workable shareholder, ownership and succession plan
traditional approach
Traditional Approach

The classic approach to dealing with the family business is top down decision making:

  • Tax driven planning
  • Family members’ objectives and issues not taken into consideration
  • No discussion amongst stakeholders

Family Business clients’ unique needs are not addressed by traditional methods!

the reality of transition
The Reality of Transition


  • Primary Focus on the transfer of assets
  • Generally well prepared


  • Preparing heirs is often neglected or overlooked
  • Advising heirs presents challenges – due to diverse and often conflicting interests
  • Heirs require customized and distinct solutions to deal with personal circumstances
facilitated approach general goals
Facilitated Approach - General Goals
  • Fostering harmony
  • Opening lines of communication
  • Building trust
  • Maintaining neutrality
  • Involving stakeholders – Consensus Building
  • Building Sustainable Succession Plans
  • Satisfying the interests of as many stakeholders as possible
benefits of integrated approach
Benefits of Integrated Approach
  • Strengthen connection to current clients
  • Create connection with potential successors (G2, G3, etc.)
  • Create and design a customized approach and solutions for your clients
  • Enhances client’s perception of you as a valued and trusted advisor
value of multi disciplinary approach
Value of Multi-Disciplinary Approach
  • Develop and Attract Clients
  • Recognize Strategic Opportunities for your services and products
  • New, innovative solutions - emphasizes process not outcome
  • Building a multi-disciplinary team:
    • Enhances relationships with other professionals and industries;
    • Creates opportunities for reciprocal referrals
preserving the family business
Preserving the Family Business
  • Planning and Process
    • Addressing all of the issues, the “soft” issues not just technical, legal and tax in a forum that encourages and allows for effective communication
    • Process to allow for communication amongst stakeholders is key
    • “Soft” issues are a reference to family dynamics, family relationships, human, emotional, personal issues
3 circle model of family business family business
3-Circle Model of Family Business*Family Business

* Developed by Tagiuri and Davis, Harvard University

Family Council Family Assembly

Succession PlanContingency Plan




Board of Directors / Advisory BoardShareholder Meetings Shareholders’ CouncilShareholders Agreements

Strategic PlanManagement Development Plan

how to use the 3 circle model
How to Use the 3 – Circle Model
  • Place all stakeholders in the right system
  • Understand and identify each other’s roles
  • Draw boundaries
  • Establish communication mechanisms between all three systems
  • Identify the issues or zones of conflict
success factors
Success Factors
  • The Success of a Family Business or a Succession Plan Depends on a Healthy Family
  • Key Factors:
      • Have a clear Mission: key stakeholders must know what the business stands for. The Business Plan should be updated regularly and there should be a written succession plan.
    • VISION:
      • Family should share dreams and visions for the future and know what each family member wants
success factors cont d
Success Factors (cont’d)
    • Need a forum for family to meet and discuss as well as a means of resolving major conflicts.
    • A clear process for making different types of decisions
    • A plan so that the performance of family members is clearly and objectively evaluated
    • Family members have equal opportunities
    • Family employees know where they stand – limits and opportunities
    • Family members have clear responsibilities and roles
success factors cont d18
Success Factors (cont’d)
    • Hire non-family managers where appropriate
    • Consider Advisory Board
    • Use Outside Facilitators and Advisors
    • Offspring should learn about the business from parents
    • Discuss possible roles for heirs
    • Heirs must have skills and qualifications
    • Communication
    • Decision-Making
    • Processes and Structures
governance goals
Governance Goals
    • Educated and Informed Family Members
    • Loyal Owners
    • Cultivating a Shared Vision for Family and Business
    • Groom Competent Successors
    • Develop Trust, Stewardship and Cooperation in Family and Business
    • Forum for Dispute Resolution
    • Mechanism to Deal with Business Issues and Family Issues
governance structures
Governance Structures
  • Effective governance structures can help maintain both a healthy family and a healthy business
  • The family business model involves three circles – family, business and ownership
  • For each of these three family business circles some form of governance structure is desirable:
    • Family - a Family Council (and policies)
    • Business - a Board of Directors or an Advisory Board
    • Owners/Shareholders - Shareholders Assembly; Shareholders Agreement
family council family governance
Family Council – Family Governance

The Family Council:

  • Formal meeting of family members to discuss feelings and opinions on what is happening in the business or other family matters including philanthropy, income needs, distribution policies, family employment policy, codes of conduct, etc…)
  • Provides a link between the family as a whole and the business
  • Mechanism for sharing information
boards of directors business governance
Boards of Directors – Business Governance
  • Common functions of BOD include:
    • Set direction and make major decisions with respect to corporate strategy, acquisitions and divestitures and major capital commitments
    • Monitor financial and overall firm (and senior management) performance
    • Assist in developing succession process for senior management (CEO/President)
shareholders forum owner governance
Shareholders’ Forum – Owner Governance

Appropriate Shareholder Involvement

  • Elect Directors to Board
  • Amend Corporate By-laws as required
  • Monitor business performance
  • Ask questions of top management and Board in formal sessions
  • Make suggestions on direction, values and policies
tools legal documentation
Tools: Legal Documentation
  • Shareholders Agreements
  • Voting Trusts
  • Trusts, Alter Ego Trust, Joint Spousal Trusts
  • Wills
  • Powers of Attorney
  • Management Agreements
  • Estate Freezes
  • Marriage Agreements / Pre- Nuptial Agreements
  • Transfer Documents
  • Corporate Documents
  • Share Capital Structure

- share rights and restrictions

- equity participation

- voting control

tools family business plans and policies
Tools: Family Business Plans and Policies
  • Business / Strategic Plan
  • Family Participation Plan
  • Policies, Guidelines, Codes of Conduct
  • Advisory Boards / Committees
  • Contingency Plan
  • Management Development Plan
  • Personal Development Plan
  • Successor Development Plan
  • Family Charter
  • Family Council Charter and/or Governance Policy
contact us
Contact Us

Borden Ladner Gervais LLP

Lawyers – Patent Trade-Mark Agents

P.O. Box 48600

1200 Waterfront Centre

200 Burrard Street

Vancouver, BC V7X 1T2

Noel Z. Golden, Partner

Direct Telephone No.: (604) 640-4141

E-mail: ngolden@blgcanada.comProfessional Biography:

Josephine M. Nadel, Partner

Direct Telephone No.: (604) 640-4171

Email: jnadel@blgcanada.comProfessional Biography: