But the senior generation may be reluctant to relinquish the reins. That's because it entails accepting mortality, observes Dick Emens, executive director of the Conway Center for Family Business at Ohio Dominican University in Columbus. He advises owners to complete and communicate a written succession plan by their 50s.
A well-crafted plan also minimizes taxes and "provides for the retiring generation without hobbling the business' need to grow and take risk," says Ira Bryck, director of the UMass Amherst Family Business Center in Hadley, Mass. Yet, "the plan is not a static thing that gathers dust on a shelf," Bryck says. It can be amended because "owners have irreconcilable differences, or the business isn't sustainable, or the investment and risk needed are too great, or the people involved are bored."
Disagreements between family members can escalate to catastrophic highs. Take, for instance, the case of L.S. Schoen, who in 1945 founded what would become the world's largest consumer truck-rental corporation, U-Haul. Profits plunged and relationships soured amid feuds involving his 13 offspring, a daughter-in-law's murder, lawsuits and financial meltdowns. Two of Schoen's sons bickered with their brothers and removed him as chairman.
A buy-sell pact in a succession plan can help avoid some of these problems. When the succession results in a partnership — for example, between siblings or cousins — it should include a value appraisal and buy-sell agreement in case someone decides to exit, says Don Schwerzler, founder of the Atlanta-based Family Business Institute and the online resource Family Business Experts.
Emens suggests that voting power should go to family members who will lead the business in the next generation. Too often, when a proprietor divides stock equally among children, siblings who don't work in the business may sell their shares. Instead, Emens would give voting stock to some and nonvoting stock to others.
Other points to consider: Forming an advisory board creates a safety net in the event of illness, disability, death or tough economic times. Training a successor prepares a capable leader to take the helm, Schwerzler says. And hosting family retreats and business meetings keeps people in the loop.
Crane & Co. in Dalton, Mass., holds a reunion at its annual shareholders' meeting in May. The corporation of 1,500 employees manufactures paper and security features for U.S. currency, as well as bank notes and passports for other countries. While strengthening family ties to the business and to each other, the gathering also helps bring new talent on board.
"As the family grows and moves out of Dalton, the family isn't as connected with the company as they used to be," says Charlie Kittredge, 58, chairman and CEO, a sixth-generation descendant of Zenas Crane, the founder in 1801.
The company has more than 100 shareholders and an 11-member board of directors. When Kittredge can no longer lead, the board will appoint the best replacement. "It's important not to favor an individual who's a family member over someone else," says Kittredge, adding that two former CEOs weren't relatives. "It's a meritocracy."
At Velvet Ice Cream — which sells 5 million gallons per year mainly in supermarkets and convenience stores — Joe Dager and his wife, Tatla, own 51 percent of the stock. Three daughters own a combined 49 percent. They acquired the business in 2005, when Dager's brother and then half-owner, Mike, wanted to retire. "All of us found our comfort area and what we're good at doing," says Joe, 70. "As we evolved, we had to make a few adjustments and changes, but we all decided we needed to assign new officers."
By age 72, Joe hopes to completely turn over the stock to his daughters. "They have to earn it, like I earned it," he insists. "You earn it as you move along in life."
One scoop at a time.
Susan Kreimer is a New York-based writer specializing in business and health.