A recent discussion in a LinkedIn group pointed out that a transition’s reach goes far beyond choosing new leadership and creating legal documents. Individual businesses present different pressures to the families who own them. There are personal relationships involved in transitions that go far beyond tactical business considerations.

 

The way the family interacts with the business has a critical bearing on the business’s continued success.

 

The family business provides sustenance and lifestyle support for multiple family units. What goes on in the family business—even from a succession standpoint—is a family matter as well as a business matter.

 

Family members vying for control can sabotage the business’s ability to continue.

 

Resentment over the final choice makes future decisions difficult, if not impossible.

 

Succession planning “outs” issues underlying family dynamics. It’s far easier to address controversial issues and differences among family members before an ownership transition than it is to deal with during a transition.

 

Accounts can walk out the door if family members stop speaking and lose trust in your impartiality.

 

Outlining a strategy protects your business interests as well as a clients'.

 

The case of the famed Wrigley family of Chicago, owners classic brands like DoubleMint and JuicyFruit, gives us something to chew on.

 

In the 1990s, under the leadership of the family patriarch, the gum company's stock price languished. In 1995, the senior Wrigley ignored the advice of his son, William Wrigley, Jr. II, to start selling mints. He stuck to his gums and failed to react to changing competitive dynamics.

 

In 1999, the elder Mr. Wrigley unexpectedly died, and Junior II took over the company. In the first seven years after the son took the reigns, sales doubled, profits soared 68%, and the company's stock price surged 45%.

 

The son had met the competition head on and ultimately sold the family enterprise to Mars candy company at a nice profit for shareholders. If the son had been able to take over a decade earlier, the shareholders might have come out even better. The slump in company value might never have occurred.

 

Another example, this one with a less favorable outcome, comes from the Bancroft family, formerly the guardian-owners of two of the most prestigious names in American journalism, the the Dow Jones and Wall Street Journal. External succession was forced upon the Bancrofts. After the company’s stock price had languished for years, the Bancrofts were left with little choice but to sell when a hostile bidder came along. If the family had chosen a successor in years leading up to the takeover, they likely could have maintained the company’s value and would not have been vulnerable to a takeover by News Corp.

 

While these two families owned public companies, private-company owners can learn important lessons from them. Addressing family differences and controversies before a liquidity event is wise.

 

For advisors, it's smart to think of succession planning as an investment strategy. Discuss family differences, foster decision-making as a family on crucial issues, and build relationships with all family members. Not only will you serve clients better, but this can be a key ingredient in the success of your own business.