Preparing for a loss of leadership

Nation's Business, April, 1997

Responsible planning for the unexpected; building a framework for generosity.

Last September in this section we ran "If I Only Knew Then What I Know Now," an article that I wrote on the basis of interviews with 10 family-business owners. An important fact that struck me about this croup--and a surprise discovery that was not part of the article--was that four of the families had suffered an early and unexpected loss of leadership.

In three of the families, the business leader in the previous generation had died prematurely, one of them in a tractor accident. These owners left children in their teens, 20s, or 30s. In a fourth family, the leader suddenly became ill and incapacitated, leaving the business in the hands of sons in their early 30s.

Such sudden loss of leadership might not be as pronounced or as dramatic among the total population of family businesses--although determining this would certainly be an interesting research topic. Nevertheless, I think there's something to be learned here: A business owner needs to prepare the company and the family early for the possibility that they may have to weather such a loss.

The owner needs to work on the leadership development of the younger generation, to prepare a spouse so he or she will know what to do in the event of such a loss to do estate, succession, and strategic planning; and to pull together a set of crack advisers and outside board members who can provide strength, insight, and continuity to a family business in crisis.

To be sure, some businesses thrive despite an owner's early death. I have known wives who took over automobile dealerships after the husband's death and managed them more effectively than the husband did. I have met sons and daughters who, while in their 20s, took over the family business after the father's death and succeeded despite their youth and inexperience.

But I have also known successors who reflect with some regret on the life they might have had if they had not had to come home as young people and run businesses after their father died.

More than half (64 percent) of this country's family-business owners don't have a written succession plan, according to a 1995 study conducted for Massachusetts Mutual Life Insurance Co. (known as MassMutual -- The Blue Chip Company). Other studies suggest that estate planning among family-business owners is inadequate.

On these pages in the March issue, family-business experts Craig E. Aronoff and Thomas E. Kaplan wrote about research showing that early and thorough estate planning carries many benefits--including greater confidence among the owners about the future of their businesses and their families. This month, our cover story offers a variety of estate-planning ideas.

So, no excuses. Get started. Preparing for the possibility that you won't be here won't be easy, and it will take more time than you think you can spare. But it's a darned sight better to do it when things are going well than to put family members in the position of having to make major decisions when they are under duress and when their choices may be more limited.

What Keeps You Awake?

It's 3 o'clock in the morning and you can't get back to sleep. What's worrying you?

Nation's Business wants to know what challenges and issues in your family business keep you awake at night.

For example, do you need to go global but you think you're not ready? Are you concerned about the pace of change? Or do you doubt that your son or daughter has the leadership ability to take over when you retire?

Fax your comments to me at (202) 4633102. Your remarks will be considered for a possible future article.