"PASSING THE TORCH: FINDING BUSINESS PROSPERITY, FAMILY HARMONY AND PERSONAL WELL-BEING IN YOUR BUSINESS SUCCESSION PLAN"
COLORADO-WYOMING PETROLEUM MARKETERS ASSOCIATION CONVENTION
SNOW KING, JACKSON, WYOMING, AUGUST 5, 2007

The question: what must be done to perpetuate a successful family business, loyal shareholder groups, and healthy family businesses?

Succession is a system. The one piece that is missing is the fact that traditional planning leaves out the human system and the inter-connectedness of the system.

A family business has three main systems: the family itself, the business, and the owners. For succession to succeed, all three systems need to be working in congruence. We need to make sure that all three systems are working, individually and collectively. If you're a family member who is not involved in ownership, you have less "power" in the equation. If you're a family member who is not connected in the business — spouses, for example — you can still have an important role in succession. If you're an employee or an owner not involved in the family, are you still going to have the same confidence in the next generation? If not, you're not inclined to stay.

Communication systems need to be effective.

There are 37 firms left from the original Fortune 500 today. Even the big guys don't get it right. Some of them disappeared because of mergers but most of them are because of failures, the difficulties of making it through the years.

Most siblings know how to be siblings but very few know how to be partners. You need to have conversations about accountability and consequences. You need to be able to let go your history as siblings in the business.

Most of us understand how a business system works. It's fun and you can get things done. In the family system, most of us have a problem. It doesn't work the same way and we don't work on systems of communications.

Do you have a contingency plan if you are a single owner? If you have most of the concepts of the business in your head? If you have partners or a capable management team that can survive in case of death, that is less important.

If you're preparing for a sale, I would think the minimum time to prepare for a sale is five years. You need to show maximum profits and take that tax burden when preparing for sale. If you're not preparing for sale, you need to take minimum profits.

What it takes to be a great owner is different than what it takes to be a great manager. Your successors may not understand what it takes to be a great owner. The first question you need to ask a potential successor is: are you here because of passion or because of a paycheck. Because if you're just here for a paycheck, you may not be a great owner. Do you have the leadership skills and management skills to be able to do that? In most small and medium-sized businesses you don't have time to develop those skills — you're too busy running the business.

Understanding roles. How many of you went into a family business and took the job that was available, whether or not it matched up with your skill set? Most people do when they enter their family business. You may not be in the right role in your family business.

Balance is what we're all striving for. We're striving for business prosperity. We're striving for personal well-being, with each member pursuing his or her passion. And harmony, everybody getting along. Keeping all three in balance is an ongoing challenge. Often, the characteristics that make a person successful in a business make it difficult for that person to get along with in a family — you develop a skill set of not listening because you're used to blocking out the naysayers.

There are value differences between family values and business values. Family systems are emotionally based. You have to work very hard to get fired from a family. Business systems are objectively based. If you don't perform, you're fired. Families have permanent membership and businesses have temporary membership. Families are driven by relationships; businesses are driven by results.

You should sit down and have a discussion collectively about the family employment policy, with everyone in the room, including spouses and family members not in the business. Talk about the criteria for getting in the business and talk about the criteria of staying in the business. Then you eliminate the emotionality of the situation of a family member showing up at the door and getting hired or not hired.

Usually we find it's easy to get into a business as a family member and hard to get out. We don't want to end up firing a family member arbitrarily.

Business Succession and transition topics:
Values differences.
Governance. How are you going to vote and share power?
Ownership and Control. You can control a business without owning it. The problem is people want to move the assets to the next generation for estate planning but they don't want to give up control. If you're made implied or specific promises to the next generation, the first generation must be specific about when they are giving up control. If you've spent your whole life in your business and your whole self worth is in the business, it's difficult to give up. It's a difficult conversation but you can get there.

Hero's Farewell - What happens when CEOs retire?
Monarchs: rule with an iron fist until they are forced out or retire
Generals: leave but grudingly and usually under pressure and often plot their return.
Governors: serve for a limited term and when they go they take their knowledge with them.
Ambassadors: plan their departures and prepare their successors.
If you are the senior generation,which are you and which do you want to be?

You should divide compensation into two parts: those I get for being involved in the business and those I get for being an owner.

Business Succession and Transition Topics:
Family Employment Policy
Contingency Plan
Siblings and Cousins
Budgeting for Continuity. Putting up or creating a side fund to affect the transfer of ownership. The senior generation will need assets and income for their retirement -- where is that going to come from? You need to plan for that unless it's an external sale.
Keep/Sell Decision
Non-Family CEO
Advisory Boards. It brings in outsiders, strictly there to facilitate conversations and bring in fresh, outside thinking and help develop business. They can also facilitate family conversations.
Building a shared vision. If you're going through a transition, everybody needs to be on the same page with what they're communicating to the employees and the management team. Preparing a transition almost demands you hear the voices from the next generation — plus you need the wisdom of the older generation who's already been through trials and tribulations.
Communication. One of our greatest needs is being heard. The black sheep of the family can just be someone who has been unheard and is acting out. Most of us don't have good listening skills, listening skills that go beyond content into meaning. Train yourself to listen for meaning, not content.
Corporate and financial measurement. Most accounting prepared financial statements are not what we need to measure a business. Figure out what are the four or five key numbers that you need to track to figure out success or loss. They may be different than what's on your financial statement. Work on those biggest numbers that will have the greatest effect on your business, the key metrics that are the most important. Look at those numbers every week and trend those numbers. That also builds accountability.
Conflict resolution. Sitting down and resolving a conflict can take a lot of work.
Ownership development. What are you doing proactively to develop the future owners of the business?
Leadership development. What are you doing proactively to develop the future leaders of the business? How are you preparing the organization for a new leader? Everyone needs to know what's going to happen, when it's going to happen, and how it's going to happen.

Before you plan, you have to be able to answer three questions: what matters most? What do you want to see happen? What do you care about? When you know the answers to those questions, then you can really begin to plan.