A Discussion on Family Business Transition

Hello, my name is Kevin Willis. I’m Vice President of Business Development with blue investment Council in Toronto. Today very pleased to have joining me Steve Legler, who is an independent, then we like to coach based in Montreal. Steve works with business families and their family members to help facilitate successful generational transfer of your family business. Steve is ideally suited to this type of advisory having experienced many of these issues of business transfer within his own family. Additionally, Steve has extended much time and resources obtaining any additional knowledge and expertise that he feels necessary to pass on to his clients. Thank you, Steve, for joining us. If there’s anything you’d like to add to that, please go ahead and do so. No, thank

you. Thanks, Kevin for having me. I always listen with interest as people introduce me because there are a lot of different ways to do it. I’ve had a lot of different titles for sure on my business card and email signature over the years, but I think you did a nice job and the fact that you mentioned that I’ve been through this my own family. My dad had started a business. My father in law started a business and he had a liquidity event and so my my in laws side, and I’ve been working with I’ve been privileged to work with a number of families that try to help them with some of these issues of taking that wealth that’s in one generation and then helping them successfully move it to another generation. We’re generally there might be more people than there were in the first one. So complexity, the complexity continues to grow. Yeah,

of course, there’s always ask you a few questions and you can elaborate or wherever you wish deep and we’ll just have a conversation on this. So you know, in your role as an external advisor, what do you believe are the first key steps that you need? To take before you can actually start advising a family on the transition of the family business?

Good question, because, you know, often be advisors that a family will bring in will be beholden to the patriarch or whoever brings them in. Of course, if I only did that, I’d be in trouble. Because there are this this, this happens in my industry where people say, Oh, my kids won’t listen to me. So I will hire someone else. Then I’ll tell him what to tell my kids and then they’ll listen to him because he’s taught me that that doesn’t work. I always say it’s important for me to establish the connection and the trust with all the key people with all the adults in the family, so that none of them perceive me as dad’s guy, or someone here who’s trying to pass that message. I need to be able to have everyone relate to me as someone that they feel that they can trust. So I really one of the key things is always very early on, is to have at least one one on one meeting with each person and kind of let them know that I’m there to work for the family and not for any particular family members.

What do you find, initiates the contact most often the first the founder, or the generation that it’s going to be passed on to?

It’s hard to say because it does vary, right? Yeah, I think that it’s typically a top down thing. It sometimes is, but sometimes it is sometimes it’s the rising generation who let’s say their parents are not willing to engage in the conversations about what the future is going to look like because they feel like they’re being pushed out. And so sometimes the rising generation will reach out to someone like me hoping to have someone else approach their parents and start to have these conversations because they’re not easy conversations to have. I mean, they involve they involve wealth and money. They involve love. They involve people’s, you know, jealousies and the eventual passing on on certain people. So there’s a lot of elements there that makes this everyone understands it’s important to talk about this stuff, but it’s always a little bit tricky. So it’s easier to kick the can down the road and say well, you know what, maybe we’ll we’ll talk about it now maybe next year, and then next year becomes five years from now and and then then you end up like my dad called a family meeting in 1985. And we all went up north and my sisters that I had on my future brother in law, and we had a weekend meeting. And then we never had another family meeting until 2006. And that was only when my dad was diagnosed with cancer and it was like, oh, gotta have another family meeting. I mean, there was no follow up after the first one because it was not interesting because we were not engaged because it was just a top down downloading from my dad to his kids what he wanted, and it was not facilitated by an outside person. And there was no follow up and so I’ve learned from some of that. So it

wasn’t because the 85 conversation was uncomfortable. It was just because it wasn’t really important to any of

you at the time. It wasn’t Yeah, we were not involved in the business. It wasn’t it didn’t. We never got any traction. Yeah, yeah.

There’s no tie in for you guys at that point. Right. Okay, I get that. Yeah. What do you find are some of the most common roadblocks to the successful transition, transition or family business.

So the two biggest ones are the inability of the current generation to let go and start to pass things on and step out of certain roles hopefully gradually so other people from the rising generation can start to take them. Number one is the inability to let go and then the other one is the feeling that there needs to be a choice made of who’s the next CEO. And that that so much, so much emphasis is put on choosing the one right perfect leader to replace one outgoing CEO with another one. And often these businesses are big enough and complex enough that a shared leadership structure where somebody’s leaving one part of the business, somebody’s leaving the family council, different people, somebody’s leaving the Family Foundation, where you can have a like a three headed our forehead and leadership role, but people often don’t see that. And so it becomes pitting the brother against the sister to see who’s going to take over and then it becomes a rivalry thing. Whereas in so many cases, there’s enough there for everyone and they will need the human capital of all those capable people. They just need to learn how to work together and not be fighting each

other. Have you seen over the years I mean, since you’ve been doing this and then evolve with your own family that the I guess the unwillingness of a founder to let go to the next generation has decreased over time or increased or is it stayed about the same?

It’s hard to say because I don’t deal with large enough numbers to make it relevant. But I like to think that the older generation like my dad’s generation was more set in their ways and thinking that their kids weren’t good enough yet and, and that nowadays with society, and even, you know, the recognition that women are equal with men, and so people looking at their son and their daughter and saying, Oh, well, you know, we have actually a number of choices for these different leadership roles. So I think because society is a little more open and understanding it is getting better. But then the other side of that is life expectancy has gone up too. So where is the wait till till the old person turned 80 You know, and now it might be 90 how there’s so much longer side of it.

Yeah, I’ve seen that too. It seems that a key component of what you do and when you talk about, you know, for successful business transition is open communication and transparency, but then family members, what kind of family do to improve that? I mean, what’s your advice?

No, that’s that’s always the first place you know, they say that the three biggest reasons are communication, communication, communication is so there’s not a simple answer to this, but practice makes perfect. Still creating opportunities for them to come together and communicate. So not just talking only about business. So I talk about instituting regular family meetings now that could be a once in once a month, dinner at the parents house. It could be a quarterly family council meeting. It could be an annual family weekend somewhere, but to create some kind of a structured, intentional event that takes place over and over on some schedules so that people can get used to talking about these kinds of subjects that they will otherwise talk about. And often people want to do like my dad had this one family meeting downloads, tell everyone what you want, and think it’s done and said okay, I’ve got it taken care of, and that’s absolutely the wrong way to do

responsibilities and assumes people

can see it’s about having one meeting with very low expectations. But then the most important thing is to set a follow up meeting so if you want it to be a quarterly meeting, say okay, well, we just had this meeting on August the first so September, October and November the first let’s let’s get our calendars and let’s book something again. Or you have that summer weekend that you’re together. Hey, let’s put this on the calendar. But then let’s have some input from all the participants of what are the things we could talk about. And so the first meeting you might not get much out of it. But then the second meeting people come to and they kind of know oh, we’re going to be talking about these things. By the time you get to the third meeting, people start to show up with Hey, I was thinking about this a while ago, and I know I’m going to have a place to bring this up and we’re going to talk about and then once you have a flow, it’s like I used to go to a lot of hockey games with my grandfather because my dad owned a business and so he would get tickets. He was always too busy working in his business. And I would go my grandfather would bring me to the games. I don’t remember any particular single game, but I remember I used to go to these games with my grandfather. It’s not the particular game. That’s the fact that I went so it’s having the meanings so that you know there’s going to be a place where you’re going to come and this is going to be the culture and this is how we’re going to be informal, but we’ll have some formality. You might have someone facilitating from the outside, you might not you might try to do a few on your own and then say, okay, we want to kick it up a notch. I’m working with a family now that for like two years I was just talking to the parents every once in a while coaching and they were having their own meetings. Well, now they’ve engaged me and I gotta be going and running a meeting for them. So there’s different ways to do it. The important thing is to get started and start having the opportunities for the conversation.

You just mentioned it in addressing that previous question the idea of family council knew you write quite a detailed explanation on formulating family councils have a different type of question is how do you I mean, how do you go about initiating that and then what do you do, you know, especially where there’s a large group of family members or there’s two or three generations, where some of the family members have to be left off of that counsel, especially at higher level. So how do you address that?

It’s always it’s always simpler when you can start having these preliminary family governance conversations before the group gets too big. So I’ve been lucky enough to work with a couple of families where it’s mom and dad and the four kids before offspring. And we start with that and that’s your de facto family council and that’s six people. It’s a nice number. If you only get to the oh, we need some family governance when you already have three generations and six different households and all that it gets a little hairier because you can’t have everyone there. So I talked about actually wrote a blog about this recently about the difference between a family assembly which is generally a larger group of people, and then a family council which is a smaller, more of a decision making management. And then so so sometimes, as the group gets bigger, of members of the family council are voted on by different family branches. And there’s a rotation of different people at times, but now we’re getting down the road where this is but but you got to start somewhere. I always say start with the smallest group, you can define. And then as the group sort of figures out how they’re coalescing, then you can make decisions about if and when to add to it. But you also have to be careful when you do that. If if one brother says Well, I want my wife to be at the meeting, and then the other one says, Well, me too, but he says, Well, no, my wife could come but your wife you have to have something that’s coherent and makes sense. So that’s why start with something and move slowly and let it evolve and don’t expect to get it right on the first try. And keep trying to make some progress and not expect perfection early on.

I always think the key to that would be trying to get members on that council that family members are actually engaged and want to be involved rather than are just like you just mentioned, feel they have to be there just because of a sense of entitlement.

Okay, wait for your jumping right on another one of my rules which when you when you decide that you’re going to have a meeting. Not everyone always wants to come no go but my rule is everyone who fits the definition, everyone is invited. Nobody is forced to come. You will have sometimes the black sheep of the family who says no, I don’t want to go it’s just gonna be dad telling us what to do. I don’t want to go, that’s fine. You invite them. And if they don’t come, they don’t come in and the next time you invite them again and hopefully maybe by then one of their brothers or sister says you know you should have come that wasn’t so bad, you know, come and come and try it and you have to keep inviting whoever fits your definition of what that group is. But you can’t force anyone to come and you can move

but mainly by doing that. Eventually the follow up creates that counsel for you because you’re only getting engaged, interested family members who want to be actively involved.

I’ve heard of another one. This was not a fairly I was working with but somebody told me. The rising generation started having meetings and they wanted that to come to the meetings and he didn’t want to come because he didn’t want to have those conversations. So they started having their meetings. And then after a while, he was like, Hey, can I come to these meetings to set the reverse so you never know when it’s coming from top down or bottom up? And it really doesn’t matter. The point is, if you can slowly get more and more people engaged and understanding and aligned of what you’re trying to do, and then start to meet regularly and talk about it. You’ll do better than if you cut people off or don’t talk about it or just say no, no, no, I don’t want to talk about that. Well, it makes no I don’t want to talk about the fact that someday I’m not going to be here anymore. Well,

then it’s true, but it’s true for all of us. Yeah, yeah, I’ve certainly had the case. Not worrying No, no, no, in a previous life, where we manage family foundations and get four or five siblings involved. And you had one with a sense of entitlement where they felt that they didn’t show up to the meeting, the meeting would be canceled, but we would always go ahead with the meeting and eventually those people would show up because there would be another need, right? So somebody trying to pull a political move or manpower and move to that they’re not going to have the meeting without

but that also you’re talking about family foundations, which is an interesting way to start working on governance. Yeah, that doesn’t involve the family business, but it’s kind of lower stakes and and that’s always great. However, there’s ways to do it well, and there’s ways to do it less well, and the less well is where mom and dad created the foundation. It supports causes that are important to them. And now they’re telling their offspring Oh, there’s an event you have to go and rent a tuxedo and go to this and give someone a check. And that person has no stake in it. No saying it. And that kind of gets old. So I think the smarter families are starting to involve the rising generation in choosing what charities they support. And not just being the person who goes there and stands for the photo op giving the family checks. I think a lot

of the more proactive families especially if they still have a family business, as young as they can they they hand over the Foundation management to their children. And they get involved directly like you said they can pick something that charity does they get involved and then they’re learning the business through that family office

they’re learning to work together with their siblings and or their cousins, all these important things about learning to communicate and learning to make decisions together. Because I mean, I always talk about family governance, and people don’t like that word governance. And I understand that it’s kind of a loaded word. But really it comes down to how are we going to make decisions together? Are we going to communicate solve problems, but how are we going to make decisions together? And the best way again, go back to what I said a little while ago is practice. Practice, practice. Yeah, go practice on some other less consequential things. Practice on negotiating where the Family Retreat is going to be practice on small things of okay, who are we going to donate this this this amount of money this allocation to but but don’t wait for Sunday down the road? They’ve never worked together and now there’s a crisis in the business and Dad’s not there anymore. And now the two brothers are pining over what to do and they’ve never worked together to work through a problem. So Foundation’s

a great place to practice that but that’s great. I know I’ve seen in the past with a number of people I’ve known business and personally that it was given that the family business would be automatically passed on to the eldest son. Later on it was automatically passed on to the eldest son or daughter but it was always the eldest child. But what if that person isn’t the most capable or in fact isn’t interested, but they don’t own up to it. They just feel that’s the place of power. So they want to step in and take the responsibility. How do you handle that? There’s,

there’s, you know, the automatic this is the way it’s done has softened a lot. Yeah. But unfortunately, there’s still a lot of people working in their family business that if they had had free absolute choice up to what they were going to do in their lives if mom and dad had been school teachers instead of entrepreneurs, they would have ended up in very different places. It’s hard sometimes for people to resist. There’s also the feeling of being duty bound. I count myself in that I went I have two older sisters. I was the only son. It was a steel fabrication business. So it was a dirty business. I was born in the 60s. So it was like my sisters were never considered. And from my earliest memory, I was this was my role I was supposed to take over from my dad and I was the dutiful son and I just did everything that that was expected of me to do that. And then when we sold the business when I was 26, and I just got my MBA. That was a huge relief, in a lot of ways. Yeah. And so now I have like, you know, these business related things because I was told I needed to study business. And now I’m working in the Family Circle of things. Yeah. And it’s funny because my my, my grandmother when I was a kid, my mother’s mother used to say to me, you should become a priest, and I would laugh at her. And then there it was a few years ago at the Bowen Center. In Washington, DC, the Bowling Center for the Study of the family. And I’m studying Bowen family systems theory, and half the people in the room are clergy. Yeah, I was like, oh my god, she was right. This

is the kind of thing provide family counseling I been through. That’s it.

So like, Hey, I came in through through the through the business circle, but really where I feel like I belong, is the family circle. So now, if I had not been born into a family with with a family business, and I had been told, you know, by some guidance counselor, or like, what do you want to study? I probably would have gone into something very different than business. Yeah, but I did what I thought I was supposed to do. Nothing wrong with that, and I’m not regretting this. Everyone has their own path. I’m just happy that I found something that really juices me up and has

found that because you probably didn’t need to do it. You could manage a family office and look after you and your sisters and the next generation but you’re you’re passing it on to other families and you’ve learned more than you probably needed to do for yourself.

Yes. Knowing because, you know, it’s it’s it’s funny. Because this this work is every family is different. And yet, the same challenges exist pretty well everywhere and all around the world. I have a lot of colleagues that I know through the family firm Institute, mostly, who do this kind of work in different countries. And when we talk about the stuff, it’s always amazing how halfway around the world, the same stuff is going on. It just has a little bit of a different player, but we’re all learning from each other a lot more than we used to because this field of you know, family business consulting really only started in the 80s and the 90s. So there’s there’s still some of the initial people who founded the field who are still are now retiring, but there’s there’s a bigger wave of people coming behind them. So there are more people who are able to serve families. There’s a lot of people who have that FBA designation that I have over here.

When you talk about what the when organizations like the VA where you couldn’t go and get

all the exactly so so. So I remember when I started doing this work, I was explaining what I did to somebody and they said, oh, there’s a lot of demand for that. And I said no, actually, there’s a lot of need for it. There. Isn’t a lot of demand for because people don’t know we’re there. But now with time with programs like the FDA program in the family firm Institute, there’s more of an awareness that there’s a supply to meet the demand, which is helping to create the demand and having families go oh, wait a sec. There’s people who help with this kind of stuff, because most of these families, they think they’re the only ones who are living with their circumstances. Yeah, right. And once they realize that there’s a lot of other families that are going through something very similar. It’s sort of like it normalizes it for them. And then when you work with someone who’s worked with other families, you can benefit from their experience to help you get over those hurdles. Yeah, I

think as you said before, every circumstance is somewhat unique, but probably 70 to 80% of the general issues are the same so you can share that with them. That says that the family interaction is unique for each case.

And that’s why it’s it’s important to have someone who’s comfortable walking into family situations that may or may not, you know, I walk into a meeting, I don’t know what’s gonna happen. I’ve got to be ready to be fast on my feet and then deal with whatever comes out, because I walk in with an agenda but I’m always ready to tuck that agenda and go with whatever shows up in the room.

But at least you’re able to walk in knowing that you’ve been through a lot of it yourself. So then they take some, you know, some some, I guess, comfort in that rather than your skills, some consultants learn,

but it’s also not just stuff that you learned from reading a book. No, right you think? I mean, I’ve sat in a room where the where the matriarch stood up and started swearing at her nephews and her sons and told them to where to go and spoke stormed out of the room. And it was my first meeting with these people. And guess what, all of a sudden, all eyes are on me. Okay, what’s this guy gonna do? And I just let her go. Yeah, and it was like they had all seen this movie before. But it was like, as soon as the door closed behind her. I said, Okay, can we get back to work now? Yeah. And they were like, Oh, he’s not like all the other ones who would have chased her down? Because

she’s paying the bill or something. Yeah. Good. Yeah, that’s what you got to do. me another question. What about where there’s family not getting could be the next generation of children that has been passed on to and you do have that one child who’s taken an interest in the family and indeed might be co running it with the founder for a number of years, then the founder passes. Meanwhile, all the children business equally, they all have an equal sense of entitlement, but one or two of four or five or 100% in the business. So

yeah, ideally, they will have seen that coming and tried to get out in front of it by either giving that one who’s running it a different class of voting shares, or have a higher percentage of the ownership. At its peak family struggle with this. Some families make the rule that you can’t own the business and unless you work in it, and if that’s what works for that family, then that’s great. But that situation where let’s say there’s there’s four offspring and one of those running the business and now all of a sudden, he’s got three silent partners who can outvote him or her that is that is a recipe for for trouble

has happened in some very large company.

Yes, publicly. It does happen. It still happens. And once that happens, it’s hard to sort of, you know, once Humpty Dumpty is off the wall, All the king’s horses and all the king’s men are trying to put that back together. It’s obviously greater if you can get out in front of that. And sometimes, sometimes the advice that that families are getting is not as good as it should be like somebody should have warned them but also that sometimes people gave the advice but it wasn’t heard because somebody thought that they were going to live forever and having to deal with it. Guess what they didn’t live forever.

Certainly, one final question. So you know, an issue I’ve ran into a few times, and maybe you’ve experienced some of this, as you alluded to with your wife’s family. So you have the instance where the fact you’re out and you wrote wrote about this, I think a couple of months ago where it’s in fact the outside family member, maybe the spouse of one of the family members, who in fact is the more capable and is running the business with the founder. And the founder wants to leave responsibility to that person or that business to his child spouse, or in fact, that that child spouse is the one most people for the family business is sold and there is this family office or bulk of assets that has to be managed to coordinate the management of those assets. But the other family the other siblings may not be too keen on that or they like you said they want their wives or husbands equally involved, although they have no capabilities. So it’s an honor to introduce a non family member to that family. Council even if they’re the most capable to be there.

Ideally, everyone gets along and is very mature and they were not always ideal. It’s not always the case. But I think if the person a lot of self awareness helps. So like if this if someone in that fact pattern is there, and he’s the brother in law, and knows that some people aren’t so thrilled with him being there. He can be a little more welcoming of his brothers and lawns and sisters as long as comments and understand his position, as opposed to lording it over them and say I got bit you didn’t, that’s not gonna go so well. So, so it’s learning how to work together and being able to get along with family members. situation

I was thinking would work if there is transparency, and indeed, they appreciate that maybe that person is in fact, increasing their pocket because they’re keeping the business going or at managing the assets in the most capable way.

When things are going well. It’s always easier. When not when the team is on a winning streak. Nobody’s complaining about the coach losing streak all of a sudden there’s finger pointing it’s the same thing and family so but things don’t always go straight up and then some people are disgruntled and like to complain that that’s sometimes good for people like me who get to come in and meet. But that’s not always fun either. So

thanks a lot. See, I mean, I won’t keep you any longer on this recording. But one of the things I’d like to get into a little more detail maybe in the future, if you will pay us that, you know, benefit to come back and do another recording us in a few months is your fourth theory, which is family ownership alternative team because I think that addresses partially allows Yeah,

so that’s, so I wrote a paper about this and it’s specifically I keep seeing the same fact pattern over and over. We’re talking about some businesses, only the family members who work in the business get to own the business. Yeah, I see because of it partly because of demographics of a lot of the baby boomers retiring, and families like that, where I’ve seen like three siblings or four siblings or two siblings that a cousin and a cousin and now they are a family owner operator team. Yeah. Whereas they used to work with in a hierarchy with someone above them. Now that hierarchy has whoever was above them has excellent stage right or left, and now they are all kind of all at the same level. And they all probably own about the same. They have different, they’re there. There’s a certain birth order that affects you know where they are, but then they have different roles in the company, but they’re still kind of all owners and they hadn’t, how to do that. So I was just starting to written something about that and I’m starting to get some feedback. I’m going to be talking to more people about this. So I’ll gladly come back later. I

look forward to following up on what you do on that. Whether it be we can talk about the future about your your systems also. Great. That’d be fantastic. Well if you have anything else you’d like to add, please go ahead.

Thanks for joining. Oh, Kevin, this this was fun. I always like a conversation about this kind of stuff. And if if people see this and want to reach out and chat about a family situation, I’m here for that and we’ll figure out where we go from here.

I welcome our followers and clients to please contact us at bloom or Steve Legler directly. And if it’s us, we’ll get back to Steve to contact you to answer any questions you may have about what he does or what we’ve talked about today. Thank you, Steve and thank you to all of you for taking the time to view and listen to our talk. Take care. Bye thanks

This transcript was generated by https://otter.ai