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More of Murray’s Musings on Family Business Succession

Leo Tolstoy said, “happy families are all alike; every unhappy family is unhappy in its own way.”

Mary Karr wrote: “a dysfunctional family is any family with more than one person in it.”

Perhaps Karr was exaggerating and there are some families that are not dysfunctional, even if I have never come across one. However, there are certainly a lot of dysfunctional families, which probably means that there are a great many unhappy families. And if Tolstoy was correct, I would think that in order to do a great job advising family business, you have to understand the manner in which the family members are unhappy.

I was once invited by a wife and her husband, both sophisticated businesspeople who were the owners of a corporation, to discuss business succession.  

The husband said to me, “Murray, you are able to do things that my corporate lawyers cannot do.”  I asked him who his corporate lawyers were and he named one of the large downtown Toronto firms. With my inside voice, I said to myself: “I highly doubt that your lawyers cannot do what I can do.”  With my outside voice I asked, “Why do you think that?”

He explained: “Whenever I ask my corporate counsel to help me with business succession, they draft a tax planning memo. You are the first lawyer who asked me questions about my family.” 

I had indeed asked the couple many questions about their family. Things such as: “Which of your children are involved in the business?  What are their roles in the business? How do each of you get along with your kids? How do they get along together? Can you see one of them reporting to the other? Do your children have the skills required to take the business over from you? If not, do they have the aptitude and willingness to learn what they do not know? How strong are your children’s marriages? Do they have spouses who are likely to influence their business relationships?”  And many, many more.

Of course, no family is going to share these secrets with you until you win their trust. Once you do win their trust, you can help them make some tough decisions, such as whether to transfer the business to the next generation or sell it, or what should be included in a shareholders agreement.

For example, I helped a dad who was terminally ill decide that one son should hold 51% of the shares and the other should hold 49% of the shares.  The shareholders agreement provided that the 51% shareholder could require his brother to sell his shares for 125% of fair market value, and the 49% shareholder could insist that his brother buy his shares for 75% of fair market value. This allowed for a way out if the brothers were not getting along, but also created a strong incentive not to split up. It worked for that particular family, but some completely different approach might be required in a different family.

Doing a great job for a family starts with gaining their trust and learning the personal details that they would not normally share outside of the family.

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