One of the most challenging aspects of succession can be achieving what you, and others, consider to be a fair allocation of wealth and control across family members. Your goal must always be, to ensure that not only is fairness achieved but importantly, that the foundation for harmony is established.
Active Knowledge Question:
What is the definition of fair in your family?
There will be a history of prior payments, the roles of elder and younger, possibly a sense of entitlement, varying capabilities and mixed contributions by children, all to be considered.
The question of ‘who gets what?’ in a family business succession process is far more complex and different from that which may be asked in an estate planning exercise. If there is an active wealth transfer, that is an active business or interest in one, then achieving equity across generations can become quite complex.
Why? Because there will likely be some family members working the business and others not, some who have contributed years in the business and others, very little, and importantly an asset that will evolve in value across future generations and require active management.
The key question to be asked and answered is, ‘what is fair and equitable?’ But what must also be considered is, ‘how do we achieve harmony?’. And that is a harmony that will endure into the next generation long after you are no longer around.
The starting point is to recognise that equality does not necessarily mean equal. Equality is about fairness and fairness has to take into account many factors. And that is also fairness today and fairness for tomorrow.
In striking what fairness may look like for your family, the starting rule is ‘process is your friend’. It’s a strange expression but means firstly set out the principles upon which you believe fairness should be determined. And then once these are settled, apply them and see how they work in practice. This process will help to remove any bias that may exist.
You can then consider if your principles have delivered what seems to be a fair outcome. Principles first, test application and then reflect and review.
Once you have established what you think are fair principles, you can then open these up for discussion with the family but again principles first.
Over the next few weeks, we will continue to consider the process which will enable you to achieve fairness in the distribution of wealth in your family business succession process.
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All the best in the success of your business,
Richard Shrapnel
