2. Real commitment
The new generation must never think that their place in the company is guaranteed because they are part of the family. Working for a family business must be an opportunity, and the owners must be very clear about the employment conditions of their children — from benefits to performance policies — to avoid giving the rest of the employees the wrong perception, says Paul Karofsky, a family business consultant.
3. Corporate governance structure
Every company must have a professional management system. Establishing a board of directors composed of industry experts, attorneys, accountants and others from outside the family will lead to better decisions. However, "having a good board of directors that includes mom and dad as advisers is essential," says Greg McCann of McCann & Associates, a consulting firm specializing in family businesses. A small business that cannot afford to have a board of directors with paid professionals can have a board of advisers made up of relatives, friends, attorneys and accountants.
4. Gift or sale?
A common dilemma is whether the new generation should get stock as a gift or should contribute capital to buy the company. "The most advanced usually have a combination of both in the transition plans," Sharma says. "Showing economic commitment to the company is important for the company's success throughout the generations." For Suiphar, the commitment from the second generation was clear from the beginning because the sons worked with the father to create the company.
The generation taking over must receive the training required to take control. The generation giving up ownership needs a plan that clearly defines the conditions of their exit, and whether, for example, they will remain as advisers or keep a position with specific duties. "In my experience, the time needed to make sure all parts are ready for a successful transition is between five and 10 years," McCann says.
6. Management first, then ownership
Transferring the company to the next generation is not only a matter of naming the children as owners. The first step is transferring the management of the company and ensuring that the new generation is trained to lead the business. "When the new leadership is strengthened and it is shown that they are competent, then the property transition process can begin," Rivers says. If needed, professional managers can be hired until the relatives are ready to take over complete control of the business.
7. Resolution of conflicts
All families have problems and conflicts to be resolved. Karofsky says it is vital to remove interpersonal conflicts from the day-to-day operations of the business and to define ways for the family to resolve differences. Conflicts not only "can destroy the family, but also the business," he says. According to Jaime Suárez, it is fundamental to have a family pact, a document that governs how relatives behave inside the business and within the family, and "how conflicts are resolved among family members."
8. Key documents
The generational change process includes documents that family businesses should pay attention to. According to Karofsky, they are:
- Family pact: Establishes the terms and restrictions for a family member to be able to transfer their shares of stock. It also establishes the rules to join and leave the company, how conflicts will be resolved, educational requirements, and compensation and promotion policies.
- Will: Specifies what will happen with the stock if a shareholder dies.
- Code of conduct: Establishes the rules of behavior for family members within the company and information-confidentiality matters.