Posting By:  Eileen O’Connor
Date: December 4, 2009

Last month, the Wall Street Journal reprinted an article first published by Peter Drucker in 1994:  How to Save the Family Business.  If this doesn’t speak to the fact that the more things change the more they stay the same, I’m not sure what does.  Drucker points out that both the business and the family will survive and do well only if the family serves the business; not if the business is run to serve the family.  Those family businesses that understand this will thrive through multiple generations, but what does it mean in practical terms?

Get help from professionals outside the business and the family.
As Drucker points out, it is critical to staff at least one top management position with a professional outside the family and the business itself.  Ideally, this key hire is in place long before management and succession plans are in place.  In addition, engaging trusted finance, accounting and human resource professionals (as consultants or key hires) can make all the difference in navigating a growing business and planning for its succession.  Outside perspectives help remove biases and generate support and consensus both within the company and the (extended) family.

I recently worked with a large family-owned professional services firm on helping them formulate an appropriate succession plan for the father as part of an overall financial plan.  The father wished to transition the business to his son (in his early 30s), while earning a payout sufficient to accomplish his retirement and legacy objectives.  It was the work we did with the son, however that proved most helpful in the ultimate solution.  As it turned out, the son’s financial aspirations were much more modest than his father’s and he would gladly trade some of the business equity to keep other key management in place so that he could have a greater work-life balance.  The father would not have written the script like this on his own and the son felt more comfortable sharing his wishes as part of his overall financial plan.  Without our independent viewpoint, we were able to mediate a plan that everyone could get excited about.

For more examples, see Drucker’s 1994 article still so very relevant today: 
http://online.wsj.com/article_email/SB10001424052748704204304574544260451524596-lMyQjAxMDA5MDAwMzEwNDMyWj.html

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