Family Business Continuation Planning: The All-Important Keep-or-Sell Discussion

by | May 17, 2021 | Uncategorized | 0 comments

I view a frank and honest keep-or-sell discussion involving the entire family concerning the family business as perhaps the most important conversation that too few families in business ever have. Why is that? I view such a discussion as a means of gauging the family members’ individual and collective interests in continuing to be in business together. However, it’s a loaded question that can open up some family wounds, so caution is in order.

Done correctly, the discussion can reinvigorate a business family’s overt commitment to the business in its current form. Unfortunately, lots can go wrong and can hasten or cause loss of the family business and family relationships because the keep or sell discussion can get very emotional and bring out hidden or suppressed feelings that have been harbored in silence and allowed to simmer past the boiling point upon their invitation to the surface.

Often, things go wrong because the estate planner lacks the requisite skill and objectivity. It is imperative for the estate planner to be very circumspect regarding his objectivity. Like it or not, while the estate planner may well view himself as representing the entire family. Indeed, many estate planners labor under the assumption that they do objectively represent all family members. Unfortunately, they may well be fairly perceived as “Dad’s lawyer,” and actually perceived as an obstacle to improvement of the family business. Indeed, it’s not unusual for a family member to view the estate planner as not being part of the family business advice team going forward due to their taint.

An abject failure to consider this perception about them has caused or exacerbated angst and difficulty in a family business. Simply put, the purposeful estate planner must tread very lightly here. Unfortunately, too many estate planners fail to heed this important admonition and possess an exaggerated view of their abilities and ability to be a good influence over the family business succession planning process.

Additionally, the estate planner must admit and acknowledge his own selfish motives in the succession planning process and must not permit his selfish desires and intentions (and those of his firm) to continue or even expand the estate planner’s business in representing the business family. Unfortunately, it’s been my sad experience that this mistake occurs with frightening and needless regularity.

Therefore, bringing about such a discussion requires some keen skill and awareness on the part of the estate planner, including honestly facing his own limitations in realizing that the estate planner might not be the right person to facilitate or indeed even suggest such a discussion about keep-or-sell.

For starters, and this is particularly true when the business founder is still alive, the generations simply often misunderstand each other and make misguided assumptions about the wants and requirements of the other because they’ve never had proper and healthy communication. Often, there is no actual consensus. The business can muddle on for decades without true resolution of this important issue.

The founder usually is much more emotionally invested in the family business and often is as proud of having younger family generations working for the company as he is of founding a successful business. However, unless the founder is careful not to force children into the family business, initially often as a result of cheap available labor, unspoken conversations on the keep-or-sell decision can and have been the undoing of many a successful family business.

Often, if the junior generations are not interested or competent to run the business, the family’s wealth situation is much better off if the family business is sold while the founder is still alive, in large part because the founder’s skill and counsel often is desired by the buyer for a period of time. In my experience, if the business is not sold during the founder’s lifetime, the family usually suffers a substantial reduction in the price received, particularly where the family lacks a clear management succession team, when the family waits to sell after the founder’s death.

This can be a particularly acute problem if the children were forced or pressured to begin working in the business at a very young age due to need for cheap labor and were sent usually subliminal messages both consciously and subconsciously that they were rightfully expected to participate in the family business, i.e., the family’s business and its status as a family first and foremost were fused, i.e., one in the same.

Children who are forced into the family business without being given options or having their feelings heard and acknowledged concerning choice of place of employment often resort to acting out in sideways unproductive responses, including doing a poor job, being a disruptive force in the family business operations and even drug and alcohol abuse.

The failure to recognize a healthy boundary between the nuclear family and the family’s business also is problematic because all acts contrary to the forced enthusiastic involvement in the family business often are perceived as disloyal to the nuclear family, which is unfair and just plain misguided and dangerous.

The emotional, economic and control imbalance between parents and a young child usually results in the child not only gong along with the decisions of the parents about participating in the family’s business, even where the child doesn’t want to work for the family business, for fear of being viewed as disloyal and shunned and rejected by the family, but she is forced to give up her own dreams and aspirations about life and often deeply resents this, which can have lifelong adverse ramifications both for the child and the business family.

The longer that the child feels powerless about being forced to work for the family business and stays there against his will, the greater the likelihood that the child is negatively impacted emotionally, psychologically and physically. It frequently leads to sudden disruptions and/or departures, often from both the family as well as the family business, particularly after the founder’s death, as death releases the fetters holding the child in the family and the family business.

The problem that I experienced a few times as an estate planner is being thrown into the maelstrom that erupts after having simmered beneath the surface with little evidence of its existence, where the tension and conflict goes from zero to 100 mph almost instantaneously. Too often, the estate planner will be overwhelmed and powerless to deal with what is now a large open emotional wound that is the source of legal and financial problems caused thereby.

The key to trying to be ready is to maintain a healthy skepticism about the emotional condition of the family and the participants in the family business. But what is an estate planner to do? There aren’t any easy or clear cut answers. Trying to facilitate the conversation without proper consideration of the volatility of the situation is potentially very dangerous. However, so is attempting to introduce another advisor into the mix.

All I can share is a method that I frequently employed in working with business families. It comes from a dear departed mentor of mine, the late Gerry LeVan, who was a very well known estate planning lawyer and law professor who totally transformed himself into a non-lawyer family business consultant. Gerry’s story that got him to that point came from requests from two of his very best family business clients, who asked for his assistance in teaching the owner’s children how to get along in the family business.

After carefully considering the legal ethics laws and other limitations that come from being a lawyer, Gerry reluctantly but bravely and I think wisely concluded that he couldn’t help them as a lawyer, so he shed his lawyer’s mantle.

For starters, I very rarely attempted to facilitate a discussion of family business succession planning by the business family myself. However, I also usually didn’t resort to a knee-jerk referral to a family business consultant, at least not immediately.

It takes lots of patience and an ability to determine exactly the right time to introduce the business family to Gerry LeVan’s 39 critical questions that he concluded that business families must face and answer in order to be successful in business succession planning.

It’s important to note that, before we review those questions, not all families will have every issue that the questions raise. In fact, in my experience, very few if any families indeed had all of these issues. Nevertheless, I presented them to my family business clients as but one of many available self-help tools that could assist the business family in helping to understand where they were and what problems were potentially in their pathway to success.

The important thing to note is that the list may present issues that the family might not be presently facing but that might be encountered in the future. I never curated or paired down the list of questions because I thought that they were well conceived. I was concerned any deletion or modification could itself be harmful to the process. I was introducing the tool as is and was one that came from a source who I deeply respected. By way of full disclosure, Gerry asked me for my input on the manuscript of his book.

Perhaps in a future blog, I will explore Gerry LeVan’s 39 critical questions that a family business must answer in order to survive.