Welcome to Beyond Succession, the podcast where your most pressing questions about future-proofing your business are answered. Whether you are a family business owner, stakeholder or keen entrepreneur, this podcast is a valuable tool that addresses topics around navigating the complexities of the family enterprise. Join Leah Tolton, a seasoned family enterprise and corporate lawyer who is passionate about helping family enterprise businesses, as she explores topics of governance, succession and growth.
In a recent KPMG Survey to Family Enterprise owners, nearly 8 in 10 business owners are developing a succession plan or expecting to transition the business to the ‘next gen’ within three years. This massive shift in family enterprise ownership means that many families will be going through tough and often difficult discussions around the future of the family business. Choosing the next torchbearer for a family enterprise is more than just a business decision; it's a blend of legacy, emotions and future vision, and the road to smooth transition can often be filled with potential pitfalls.
In this episode, Leah welcomes special guest Gregg Becker of Predictable Futures to talk about key considerations surrounding the continuity of the family enterprise. Join us as we address the unique challenges, and potential solutions, for businesses standing at this pivotal juncture.
Gregg Becker: [00:00:00] There's resources that many families don't even understand, like, I can't tell you how many times I find that the in laws, sons and daughters in law, are amazing resources. Like, oftentimes, there's very, very capable young women, men that have married into the family. And they sit in the background because, you know, this is your family's business, it's their deal, and so they hang back.
Understandable. But in a crisis, you want to know what those resources are, like, because sometimes they are the most clear thinking people of all, because it's not their mom or dad who's passed away.
Leah Tolton: [00:00:42] Welcome to Beyond Succession, a podcast series within the Bennett Jones Business Law Talks podcast that discusses topics around navigating the complexities of the family enterprise. I'm Leah Tolton. partner at Bennett Jones LLP, and I'm a family enterprise and corporate lawyer, passionate about helping family enterprise businesses navigate the complexities of governance, succession, and growth.
Before we begin this podcast, Please note that anything said or discussed on this podcast does not constitute legal advice. Always seek proper advice from your legal advisor as every situation is different and outcomes can vary.
According to a study conducted by Family Enterprise Canada, 75 percent of family businesses are owner managed and of those 15 percent transition to the second generation and only 3 percent transition beyond the second generation. On today's episode, we're taking a deep dive into family enterprise succession planning with our special guest, Gregg Becker, president of Predictable Futures.
A private business consultancy that helps transition owners and families in leadership and ownership. We'll explore the unique challenges parent business owners face when it comes to succession discussions with their children, a terrain often fraught with emotional complexity, diverse interests, and diverging visions for the future.
We'll discuss the role of strategic tools in aiding this process, bringing clarity and helping to drive consensus. We'll also ponder on how to achieve a fair and equitable succession plan that considers all family members, even those not involved in the day to day business operations.
Greg, thanks so much for joining us on the podcast today. Good to be here. It's a pleasure to have you. You have extensive experience assisting family enterprises with all kinds of transitions, both in leadership and in ownership, and so in that context I expect you've had or you've seen many of these.
Things unfold in families. I wonder if you could share with us what are some of the biggest challenges that business owners who are parents face when it comes to succession planning and conversations with their children?
Gregg Becker: [00:03:15] Yeah, such a good question. You know, because my background is operational running businesses, I have a deep heart for those parents who are running a business and trying to Now make a transition out of running it on the everyday basis and figure out, well, what do I do about the leadership of the company to make sure that the company goes on and does well, um, because they care passionately about something they've built and at the same time thinking through ownership and where do I, how do I take that forward and where does it go and how does that happen?
Cause that's, you know, leadership transition is something that many business owners have actually thought about and maybe gone through a bit, but ownership transition is much less common. And so it's a bit of a new. Frontier for them and one of the biggest challenges that I see is the lack of alignment and that could even be amongst the ownership group and that could be a husband and a wife.
It could be. Yes, amongst the family. It could also be with their senior management team and. While at the end of the day, the owner gets to make those decisions, um, a lack of alignment shows up sooner or later in other ways that, uh, probably can thwart their purposes and their goals of what they actually want to accomplish.
So that would be one of the biggest things. And then we could talk about leadership, uh, versus ownership and the kind of sub things that show up there. Yeah.
Leah Tolton: [00:04:32] Tell us about, you know, the kinds of things that you see create challenges for the, in those conversations when we're thinking through about the leadership transition.
Gregg Becker: [00:04:41] Absolutely. Yeah. And especially when you're thinking about a family business, you know, you have kids who may or may not have ever worked in the business. Maybe they worked in the summers and swept the floors or, you know, had some jobs over time, but they're, they're often not in leadership position.
They may not even be interested in the business. And so the question is, what, what's the involvement of our kids? What should it be? What about if some are in and some are out? What about, um, if they aren't interested, but they might be interested later? How do we deal with that question? So that's a, a very common issue that I see.
Um, unprepared kids, you know, so the kids could be putting their hands up, or one of them could be putting their hand up and saying, yes, I want to take this on, I'm, I'm ready, put me in, coach. And the question is, are they ready? And as a parent, that's hard to judge sometimes, you know, you have these. Tinted glasses that come with being a parent and while we think we're objective I can tell you that it's really really hard and especially if they're really not ready.
How do you say to your daughter or your son, you know, I think as much as you think you're ready, you're not and we have to do more development or maybe you'll never be ready. That's a big challenge. Professional management is an option, you know, and maybe in that kind of a condition, uh, or context, but is that even agreeable?
Would people put up with that or want to do that? And then finally, you know, the immovable founder, which is much less common than I, I had always thought it was going to be, but you do get these founders that just, It's what they all know how to do. It's what they've always done and it's hard for them to let go.
You know, that does happen, of course. I personally experienced it actually in my history. But I've got to tell you, I find a lot of founders, by the time they get ready to make these decisions, are actually a lot further on the I'm ready to go curve than, uh, than you might think. And, uh, They have to figure out where they're going to go next, but, um, they are ready to go.
And usually with some help, they can plan that next phase for themselves. So in the leadership transition, those are some of the things I've seen.
Leah Tolton: [00:06:35] Now let's talk a bit about ownership transition. You know, I, I think. It wouldn't be surprising if in that situation that, you know, parents are also confronted with challenges of how they treat their children fairly.
And there might be some tension there in terms of wanting to treat children equally. I'm, I'm guessing there, you can tell me if that guess is correct or not. What kinds of things do you see there?
Gregg Becker: [00:07:00] That's certainly part of it. Um, you know, sort of thinking through. And discussing with a family who should get shares and on what basis and, uh, involvement of non operating kids.
First biggest thing is the separation actually of the leadership and the ownership transition because they're two totally different things. You can transition leadership and keep ownership. Right. Um, you can also transition ownership and keep leadership less common. For an owner operator who's run their business their whole life.
Those two things are so entangled that sometimes they can't even conceive of, uh, disentangling or decoupling those two things. And so you ask the question and they go, no, you, I mean, you have to work in this business to own it. That's the gut response because that's what they know. That's maybe what their parents did.
And so creating the possibility of separating those two things is often the first impediment or challenge that they have to think through. And then once you've kind of got them thinking that, uh, Uh, way, then there's the unfamiliarity with the process, as I said, about the ownership transition itself. How do I do this?
Right. I, I've been running a business for a lot of years. I know that this business cold, I'm, I'm on it. I'm smart. I'm capable. I know that's true. But this is not. I've never done this before. So is it just a tax strategy? Is it, um, is it something I try and do with the kids? Don't I do it with kids? What about?
In laws and supposes they get involved, there are a lot of questions that they don't necessarily have the answers for and sometimes don't have the questions for it yet either. And that's part of the challenge, is to help them get familiar with the territory, understand all the options, think through the hurdles and some of the questions that have to get answered.
Um, and then once they get that, then the familiarity sets in and then they can make good and better decisions. Uh, waiting too long is another common thing. You know, yeah, yeah, yeah,
Leah Tolton: [00:08:45] I'll get to it. Do you mean like waiting too long for the market or waiting too long in terms of stage of life or waiting too long because the kids have moved on or all of the above?
Gregg Becker: [00:08:55] Yes. All of the above. And 13 others. Um, and you know, you're busy running your business. Maybe the market isn't good timing to sell the business or you know, we're in COVID like this is not a time to write trying to transition or whatever it is and but waiting too long because these things take time like you don't just flip a switch and do transition in three months or six months if it's to be done well.
And so, um. Taking the time to work proactively and think it through and have a good process. You know, one of the risks of course, with waiting too long is that we have some kind of a crisis, you know, right. Show up and now there's a health issue, or maybe the, the business's wheels start to fall off or something, and now we really do have a burning platform we have to solve.
That is not the best way to have a great outcome. Um, so that's a concern. Um, and then the last one I would say is just walking through with the family and engaging them on this question of, well, where should we go? Where should the ownership go over time? Do we hold onto this even, or do we sell it? Is that okay?
Right. If this was grandpa's, um, is it okay if we saw it, there's a sense of legacy and then are we selling out somehow, or are we. Doing something that we, that goes against our values. And assessing that, and then, and there'll be all kinds of views on those things. Right. And, uh, but getting as much alignment as you can, and a sense of a fair process so that everyone has input to it.
Because if it's a fair process, at the end of the day, not everyone will agree necessarily with the outcome and the final decision. But if they sense it was fair, most people will back it. Right. And that's how you get consensus and can move forward and not have too much carnage in terms of the relationships.
Leah Tolton: [00:10:35] So let's talk a bit about that fair process because, you know, that comes up in other contexts, certainly other contexts that I'm familiar with, you know, I'm, I live in the, in the ownership and the management space and it's all about process in, in the situations I'm confronted with, you know, what, what does that process look like in order for people to feel like it's fair.
Gregg Becker: [00:10:56] Yeah, well, the biggest thing is involvement of the relevant stakeholders and, you know, a founder who spent his or her life running a business and making decisions sees point A to point B and the most efficient route is to make the decisions and just move on. And by the way, everyone else can live with it and that's great.
It is efficient. It is not a great way to get a good outcome. Um, unfortunately, there's a lot of people who have to participate either before or after the decision. And, uh, and if they feel cut out of the process, then their participation and interest and engagement goes down. So one of the key things is to get those other people involved.
That doesn't mean they get the final say. Um, but to have, uh, involvement early so that everyone feels like they at least had input to it. Um, another is to use tools that, um, help. Everyone feel like it was managed well and it wasn't just, you know, railroaded through. Um, so good processes include things like a code of conduct and, um, you know, governance mechanisms and that kind of thing.
And so with those kinds of tools in place, then people go, okay, this is a carefully considered process. It's been well thought through. We're doing it proactively. People are being asked their opinions and heard. Um, and then we're making decisions as a group. Creating a cost shared vision is also a really important part of that process.
Where do we want to be? In 5 and 10 and 20 years, best we understand, is the goal to perpetuate this thing, um, is there a fourth generation, a fifth generation, and if it's not clear, that's fine, but let's try and get as clear as we can, and then make decisions based on that, rather than just assuming. That one person's vision of it is what should be what everyone else is going to strive after.
Leah Tolton: [00:12:40] And so it seems to me as you describe this, that the process piece is important, whether we are talking about a leadership transition or whether we're talking about an ownership transition.
Gregg Becker: [00:12:52] Yeah, you know, when I'm doing this work, I actually run the simultaneous. The process for both and at every stage, we're talking about, okay, what about the leadership?
What about the ownership? What about, you know, and now those are separate conversations, but the two are also very entwined. And so you really need to consider both sides of the ledger, if you will, and using an accounting term and to say, um, what's the right process to do our leadership transition. And then you might have some different stakeholders that need to be heard.
Like what about the senior management team? Um, what about the other owners, even if they're minority? Um, You know, there's different people who might get involved in that, um, but if it's ownership and the intention is to keep it in the family, then let's get the family involved.
Leah Tolton: [00:13:37] So what happens in this scenario where we have family members who are involved in some of the leadership positions and we have.
Family members involved in ownership position, but they're not necessarily the same people. How do you navigate that?
Gregg Becker: [00:13:54] Yeah, you know, the quick answer is the word governance. And there's governance again on two sides. There's the business governance, which would be a board of directors. And when I say board, I mean a performing board of directors.
Um, and then on the family side, there's a family governance mechanism. I call it a family council, but you can, you know, family meetings, that kind of thing. But those two groups, which are separate, they may have some shared, um, membership, but they have separate functions and they have very clear functions and they have lots of interaction, help say what's the best for family, what's the best for the ownership piece of the family, and it's quite frankly some of the leadership considerations that impact the family.
And then on the business side, that board of directors, because every company has a board. I mean, it's effectively your fiduciary directors of the company. It may not have been functional. I was always just, you know, you sign something once a year for the lawyers to keep it going. And, and, you know, it's not functional in terms of a formal structure.
However, it's highly functional if it's a founder. That was the board, he or she made the decisions. Absolutely. I've decided this is what we're doing. Yep. Strategy, it's all easy. Right. Now you get complexity when you start to add in other people, when you're transitioning to that next generation or to outside professional management, when you're involving more people in professional management or the company's growing and the complexity is getting bigger.
So that's where a really functional board of directors doesn't have to be fiduciary, it could be advisory. Mm hmm. Um. It can really help because that founder or that current generation leader and leadership has to have a way to navigate through those questions, um, and consider what's the goal, you know, where are we at?
Where are we going? Um, how do we get there best? Where, how do we make these trade offs with growth and with risk? Um, what about profitability? Those kinds of questions. And again, it's not just one person's decision anymore. So a functional board and it has a lot of responsibility. Really, really great advantages.
And of course it's new to lots of business owners, but for that transition period, it's magic because now we've got people who are independent. Right. They have no conflict of interest, they have no rose coloured glasses, they're just, they're objectively trying to help the business do the best it can. They often bring a very wide perspective and set of skills and expertise that may not be accessible otherwise to the owner.
So they can access and provide lots of good wisdom to speak into any given situation. They're also super helpful when you're evaluating leadership. And if that leadership is kids, um, you know, if I'm the dad, do I want to tell my son you're not cutting it, son? That's a hard thing, but a board chair can do that with much more independence and objectivity.
It'll be heard better by. The underperforming leader and it will be a weight off of the dad or the parent in that situation. So the board can be quite helpful and the board will ask the right questions strategically to say, yes, I understand what you want to accomplish with your family, but what about the business?
How do we make this sustainable? This is not working or this is working, but what are we going to do? It's going to go crazy. Right. How do we manage the growth? How are we going to manage growth? It's going really quickly. Yeah. All right. And you know. The leadership might be perfect for where we've been, but where we're going is not where we've been, so let's think about that.
Do we have the right leadership for the next leg of the journey?
Leah Tolton: [00:17:16] So what I'm hearing you say then, I think, is that There can be some benefit to having some independent people, whether they be advisors, whether they be board members, uh, who can ask some challenging questions or provide some objective observations about, you know, things that may be impacting on the parents conversations they need to have with their family members, that may impact on the business and leadership in.
Uh, the business, uh, operations, which may include family members, and may also provide some direction or assist the owners to provide some direction in terms of where they want to see the business go.
Gregg Becker: [00:17:57] Exactly right. Yeah, that independent, external, objective perspective is so valuable, especially if they've got that wide set of skills to it, bring to the table.
But I don't want to lose sight of the fact that it's not just independent advisors, it's the board of directors process. Has something quite unique to it. It's a structured process where it's, you know, whether that's a quarterly meeting or something, it's something reasonable, of course, good reporting in.
So those people sitting around the table include the owners and their independent advisors or members of the board. There is a regular meeting and all they focus on is that business and it gets into the business very deeply. Um, there's chosen to deal with the board and, and the business at this exact phase of this company's life.
They are completely independent in the sense that they have no conflict and unfortunately sometimes the advisors, while they're great advisors, probably shouldn't sit on the board because they're also a client. Right. And that's a bit. Can be tenuous. Um, and so the board process actually creates a need for an annual strategic plan.
The first thing an independent board member is going to say is going to say, well, what's the strategy? And if the answer is, uh, well, and it's vague. They're going to say, okay, let's go through a proper plan and tie it to our budget so that we can actually create metrics and a plan that we can then measure against and say, are we on track?
Are we off track? Um, and so the rigor that comes with that process is so profound. It's funny, you know, I've probably built 20 to 30 boards, so yeah, for sure, 20 to 30 boards in the last five or 10 years for independent companies. I've never had one of them turn the board off. And shut it down other than for some really extraneous reason, like you were selling the company or something legit.
Mostly they just go, we should have done this five years ago. Which, because it's just the right thing to do for the company.
Leah Tolton: [00:19:39] And so, you know, back to the, the image that you portrayed of the intertwining of the family and the leadership or the family and the business or the business and the ownership, it seems to me that the.
of an independent board of directors, they can assist that parent who has been the one who has had responsibility for all of those functions, and who has had all of that knowledge in their head. Those independent board members can assist to decouple that. And pull it apart and make that easier for them to address.
Gregg Becker: [00:20:12] Yeah. And you know the owners often have different. Perspective and even if it's a husband and wife team or two brothers or something like that, you know It's rare that they're a hundred percent aligned You know The dad thinks the daughter should take over the mom thinks the son should and now we've got marital discord on top of a succession issue right or You know two brothers who worked together for 20 or 30 years But they perform different functions in the company maybe once in a more senior role their compensation could be different How do we manage that and how do we performance?
Leah Tolton: [00:21:11] So let's talk a bit about some of those unexpected items, those unexpected events that can occur, that can...
Throw a wrench into the best plan. We've been talking about approaching the discussion about leadership or ownership transition from the perspective of who is best placed to become the leader, how we transition ownership, etc. What happens when some sudden and unexpected event occurs? Uh, becomes ill, someone dies, you know, some crisis happens in the business, there's a fire, there's some other kind of major loss.
How do these, how does, how does this dynamic change when a big event like that occurs?
Gregg Becker: [00:21:54] Yeah, unfortunately, these things do happen and you know. Part of the answer is to be really well prepared for it. Right. So, you know, that's where a great unanimous shareholder's agreement or, uh, buy sell arrangement or, uh, proper insurance or all of those things that we surround ourselves with that you hope you never have to use can really make a difference, um, but if you've got clarity in those agreements because you've actually pre thought through how you deal with it, then at the moment you don't have to try and process and go, what's the, what makes sense here?
I mean, that's the advantage of doing it in advance. Mm hmm. Again, a board is very helpful at that point, because they can, and I've literally seen a founder pass away unexpectedly, a wife who had no idea, never worked a day in the business, and she's 100 percent the owner and has all these decisions, on top of being a grieving widow, and I've seen the board just jump in and say, you know what, We'll help work with management.
Actually, the chair in that case actually stepped in as the acting CEO for a few months till they found a six, you know, uh, external professional management. Like that's that is a great way to begin to manage through some of those issues. Having a functional governance system on the family side. So we've talked about the board for the business, but for the board for the family, this family council meet, like that again is great.
It's gold in those situations because now we can pull people together who aren't, this isn't the first time they've been together. They've already agreed what's our values. They've talked about what's the vision for this business. They've already thought through, um, what's our code of conduct in conflict situations.
All of those kinds of things are established and now we've got a crisis. What are we going to do about this? What are, what are the family's wishes about this as far as it goes for ownership? Um, I can't tell you how many times, you know, I've asked the, the family, what do you know about? What do you know What do you know about the estate?
What do you know about all kinds of things? And the answer is not much. I actually have a tool that I use, not very often, but I call it the crash test, and you'll have a family meeting going on, and I'll literally have the parents at a prearranged signal just get up and walk out of the room. Right. And everyone is like, what's, what's going on, like why did mom and dad leave or something like that?
And, uh, and I, as the doors close, I say, I regret to inform you that your parents were killed today at a, at a train crossing. No, everybody knows that it's a construct, they just watched mom and dad walk out. But then I follow up and say, okay, we have a whole bunch of decisions to make. There's a whole bunch of stuff that we have to figure out.
Who here knows who the accountant is, who the lawyer is, where the wills are? Have anyone here talked to senior management or some of you in senior management? Um, and, and we just take them through a litany of questions that they have to think about and then capture it all and then we invite mom and dad back into the room and we say, now we have some questions for you because at that point it's glaringly obvious that there's a bunch of things that we haven't necessarily talked about or they just aren't well understood.
Right. They may have been talked about but no one else knows about them. And, uh, and that can make a lot of difference in a crisis situation when you have that level of, um, awareness amongst the family as well as in the business.
Leah Tolton: [00:24:59] I, I really like that suggestion. You know, I come at this from the advisor's perspective.
And so, you know, the, the approach can be based on checklists or instruction letters or whatever, step one, step two, step three, step four. And it doesn't always involve all of the people who will be left to manage it. And so, I always wonder, what is the best way to make that link between the people making the plan and the people who will be living with the plan?
What is the plan? Can the people in the plan live with the plan? And, you know, I like the crash test suggestion as a way of, of, um, You're bringing that kind of question home. I'm heartened, of course, by your suggestion that it's a good idea to have those kinds of structures in place, such as legal agreements and insurance and things like that.
But I think really what you're talking about here is making sure that people have attempted at least, or that, that there's been an attempt made to think about what will happen in that situation and that everyone understands what will happen in that situation. We're back to that whole idea of, of communicating what it is.
That we intend to have happen, that people understand that it fits with things that we've discussed before, that it aligns with what we agreed was going to be important, and we're comfortable with the process that's been employed here in order to put that into place. Yeah. Have I got that right?
Gregg Becker:[00:26:21]Exactly. It's so important to use an established, successful practice, uh, process, rather, that That has a predictable outcome, uh, because if you know that, doing that process proactively is way easier. I mean, you're not in the throes of crisis, you're not trying to, or you don't have a burning platform in terms of the business, um, and all these other factors become issues.
So if you, if you're following that process already, then everyone else is involved appropriately. Um, but there's resources that many families don't even understand. Like, you know, I can't tell you how many times I find that the in laws, you know, the kids, sons, uh, the partners, yeah, sons and daughters in law, um, are amazing resources.
Like oftentimes there's very, very capable young women, men that have married into the family and they sit in the background because, you know, this is your family's business. It's their deal. And this at least they hang back understandable, but in a crisis you want to know what those resources are. Like though, because sometimes they're the most clear thinking people of all, because it's not their mom or dad who's passed away.
Um, they're not involved in some of the sibling rivalries unless they're dragged into it, uh, which does happen. But, um, So, if they've been involved from an early stage, they understand what they bring to the table, what their part is in the process. Then, when we do hit those kinds of crises, um, boy, those can be great resources for you.
So, I'll sometimes ask, you know, the family and just say, hey, do you want to involve the partners right from the start? And mostly they say yes, but once in a while they'll say, yeah, I think we just keep it to our own family, to our kids right now. And I'll say that's fine. I get that. Later on, we can look at including the others, but you do need to understand that when you say you're not coming to this meeting, we're having a family meeting.
And you're not coming, you're sending a message, and I'm not sure that that's the message you want to send. When you're trying to get your family's engagement and involvement and support on this. If they're not included and aligned, that will work against you later. So you can go there now, but I don't highly recommend it.
It's often an impediment later. I would say I've maybe once lost that battle of including them right from the get go. And after that first meeting when they did it, they said, you know what, we should have them there. And I'm going, yep.
Leah Tolton:[00:28:41]You know, it occurs to me when you, when you talk about the resources that are available in other generations or with other representatives of other generations, whether they're, we've been talking about spouses or in laws, but that could also be true of kids.
I wonder if there is a comment or something you could share about how the conversation between a parent and a, and a child might be made easier if It was a matter of seeking what kind of resource or what kind of viewpoint the child has that could actually benefit either the business on an ongoing basis or on a crisis basis.
Yeah. Like, are there, is there something there that can assist a parent who's, who's looking at their child and seeing them as maybe, um, an unlikely successor or an unready successor? Are there other things that that child or that a spouse might bring to the table that the parent might not have thought of in their linear and intertwined way that could be beneficial to the business?
Gregg Becker:[00:29:40] Yeah. It's a good question. Um. And also a parallel question is at what age is appropriate engagement? I mean, if you've got a five year old, you know, probably not going to include a very young child. And we always have this question come up, you know, in my practice, this question, what if they're 15? What if they're 18?
What if they're 23? And they're figuring stuff out because everyone in that age is course figuring lots of things out. I tend to err on the side of inclusion because when they're, Not comfortable or not ready. They just hang back. And I think that the education process is really, really valuable for them to hear adults in the family talk about some of these issues and create an expectation that someday this is a conversation you'll be a part of, whether or not you're engaging with it now seriously or not.
That's a good thing. And you'd be surprised at the voice of babes sometimes, but they will say, um, I, we had a family one time that was talking about a very strategic decision about what the business, where it was going to go. And they were actually thinking about this new. line of business. And there was a real consensus growing.
You could hear it on the table that they were going to go down this and all of a sudden this young woman, uh, put her hand up. She's I think 17. She said, yeah, we can't do that. And they're all like, why not? And she said, because our values say, and she pointed them up on the wall and she just nailed it. And, uh, they all went, she's right.
There's a little to ing and fro ing, but at the end of the day, no one else had that insight. And sometimes that is amazing to me how some, they can't follow the bouncing ball so much in terms of operations, they may not be really deep on the financials, they may not be skilled in some of the governance things, but they can follow the theme and the plot.
And they don't get thrown off, and all of a sudden they'll come up with these observations. You're going, that's a good observation. And a great example of it is, we say we're a generous family, or we're involved in the community, or we, it's built into our values. How does that play out? And I've had young people, and people who may be not involved in the business say, Tell me how that shows up.
What do we do? And, uh, and then they can say, oh, here's all the things we do. Or, which is good education. Or, yeah, you know what, there's something we need to do more of. And so there's a question around philanthropy. And do we do that? And how do we do that? And so, so I think there's lots of ways, if they're there, that you can get them engaged.
Leah Tolton: [00:31:57] How can families ensure that their succession plan is communicated effectively to all stakeholders, including employees or customers and suppliers?
Gregg Becker: [00:32:08] Yeah, the communication piece, of course, is so critical, but engagement, as we've been talking all the way through, is a key piece of that. But, you know, there should be a handoff from the family, in terms of what their wishes are, to the business, so the business also understands.
So a board isn't perfect. Place to do that if, if you have that, um, and if not to the senior leadership team in some fashion to say, here's the output from our family meetings and here's what we value and here's what we're trying to do. You know, if the answer is we're trying to perpetuate this for the fifth and eighth generation, 10 generations deep, I don't know.
Management has a much better sense of what the goals are of the, of the family and the ownership. Um, and vice versa. I think that the, the. Business can also say, here's what we're working on, here's our strategic plan, and so the family is aware of that as well, and that's a great communication mechanism back and forth to say, at the highest level, what are our goals and where are we going?
So the boards can be helpful there, whether it be on the family side or on the business side. Um, I think having management bring back a communication plan to the family, so if the family says, here's what we want to accomplish, management can say, thank you very much. Um, and they can actually come back with a communication plan and say, here's how we're going to communicate this thing, because not everybody needs to know everything that the family wants.
To know it's, you know, there's an appropriate confidentiality as well on some things and management is well positioned to say, here's how we're going to communicate. Does this go right down to the front line? Is this just with our senior leadership team? Does it go to other stakeholders like our bank? Um, like there's other people who might be involved, but management's probably best position and it'd be great if they would do a communication plan, bring it back to the family and say, here's how we're going to communicate what the wishes are of the family and the ownership.
And I think the other answer is to communicate more than you think is needed. It always amazes me how in the aim, I think sometimes in the aim of efficiency, people tend to go, Yeah, we don't need to do that. Um, or, you know, we'll figure that out later or whatever. And I think that a lot of times it's very helpful if we just try and err on the side of over communication.
And people know about it and they may go, okay, yeah, yeah, I know that that's fine. But at least they've heard it. Maybe they've heard it more than once. And uh, it gives a chance for everyone to, uh, to hear it. And look for ways to try and get communication to everyone at the same time. A lot of communications in family based businesses happens on an ad hoc basis.
You know, the, Boss, the dad, or mom, uh, has a conversation with the son, but then has a separate conversation with the daughter. And the siblings talk at different times to these kids, but not those kids. So getting everyone in the same room at the same time, hearing the same message, is very helpful. Hearing the same questions that are asked by other people.
And other people may have questions that you don't have, which is fine, but you'd be amazed what you learn when those questions get asked. And, um, if you want to create alignment, a lot of it comes down to getting people together, And having the communication happen consistently across the whole group, so we all walk out of the room and go, okay.
And then, by the way, when we do walk out of that room, we speak with one voice. We agree in advance that, you know, we're all going to go and, and say, well, that was, that was a mess. You know, here's what I think. No, no, no. As a family, we're unified. Just like as a business, we're unified. We have to have leadership as well.
Leah Tolton: [00:35:25] So this is not inconsistent with the recommendation or with the. The process we've been discussing in the business where you have a board of directors who oversees or challenges or questions what's going on and then a decision is made and that is the decision that goes forward. Or that we've been discussing in the family group where we have said everyone is clear on the values, everyone has been heard, they've had an opportunity to have a voice, they feel like the process has been fair, I hear a recurring theme here.
Gregg Becker: [00:35:54] Yeah. It's exactly the same thing. And you know, it's, it. Anyone who's ever been in a family gets this. I went into a business one time and I was the hired COO. And what happened within the first few months of course was that they didn't like a decision I made and so they went back door to the owner, who by the way still had an office there, and told him the story and he changed the decision.
But he didn't have the same information. And I went, well, that was unhelpful because if you don't like what mom says, then let's ask dad. It's like families, right? And so getting agreement that we will speak with one voice and we'll consult with one another is super helpful, both in the family. Yes. And certainly in the business and, uh, I remember going in and talking to him.
His name was John and I said, John, we have to have a conversation. And of course, it was great because he, he actually got it. He went, Oh yeah, of course. I didn't know that they had asked you and you had said no or whatever it was. And I said, so next time someone comes in, maybe your first question should be, have you talked to Gregg about this?
And you know what? Don't we do that as parents when our kids come in and say, what does mom say? Exactly. And so, yeah, that theme is consistent. And, and, and the communication principle is. Pretty simple, but it actually is very important, um, amongst, uh, to get good transition happening.
Leah Tolton: [00:37:09] So you've mentioned that, you know, there are tools available to assist with difficult conversations or with setting rules for communication, whether they be in families or in the business.
Can you tell us about some of the things that you have found that have been particularly effective?
Gregg Becker: [00:37:26] Yeah, and some of them are going to be things that people understand already intuitively or practically and other things maybe they haven't bumped into before. But again, that's probably because this is fairly new territory for lots of entrepreneurs and business owners, but the family council, which is what I call the governance mechanism for the family.
So, you know, it might only meet well during transition, it might actually meet.
It's not like a board of directors that needs to meet as frequently, but it's a great clearinghouse for issues. It's a great way to continue to get alignment and to go across the family and nurture that sense of vision. So that's one great tool. Another is a code of conduct, which is basically agreeing in advance.
When we hit conflict, How are we going to deal with it, which is the right time to set those rules because when you're in the midst of it, lots of times it's the mitts are off and you know, we're just going at it.
Leah Tolton: [00:38:17] You're seeing me nod, but my, our listeners can't see me nod, but that's exactly what I say to people when we're putting together the legal agreements.
You know, we need to decide how we're going to deal with each other when the argument arises because it will, and it's always easier to deal with that in advance and have set the rules of engagement and what you've described as the code of conduct before you do that.
Gregg Becker: [00:38:34] Yeah. Yeah. Yeah. We, it's funny cause we'll talk about it and.
People, they'll kind of laugh about something like, okay, no, no fist cuffs or we can't, you know, throw things at each other. So there's humour. And at that point you can have humour. It's not funny when you're in the middle of it. Right. So actually having some rules, um, like, can we take timeouts? And if we do take a timeout from a discussion, whose responsibility is it to bring back within what kind of timeframe and all that kind of thing, um, just codifying that.
Helps people manage through the conflict later. So that's a great tool. A fair process agreement to say, how are we going to, what's a fair process? What would we, if we were going to do this really well and everyone would say that was fair. I don't always love all the outcomes, but that was fair. What would we include in our process and getting their involvement in defining what that is?
Family affirmations. This is one that doesn't get talked about. I use it regularly and it sounds a bit kumbaya, I understand. But when we get into family meetings, And before we hit the conflict issues or those contentious things, I will spend time with people going around the room to say, What do you really like?
One thing you really like about each other. And especially with conflict prone families or ridden families, this is a big deal. And, you know, they kind of begrudgingly start, I've never had a family finish without a clean Xbox being brought out. But the reason it's valuable and important, um, as soft and wishy washy as it sounds, is that it builds a sense of trust and communication that lingers.
And then only as we get into, um, the conflict or into the issues that are more contentious, the trust lingers as well. And people go, you know what, I just said he or she is a good guy or whatever because of things. I can't just mail them to the wall. So it's a very helpful tool. Creating family values, which are usually in family businesses, is often the same values you'd have in the, um, in the business.
Um, that can be helpful to get people aligned and cohesive in how they think about what's important. And everyone's sense of values is different, but there'll be a core group that most people can agree to. There can be a dark side, and I always have people talk about the dark side of family values. Which is an interesting conversation, because most families love, what do they love?
They love peace, harmony, loyalty, like what family doesn't want those things. But if we are striving constantly for peace and harmony and loyalty, how likely is it we'll engage in healthy conflict? And the answer is not very. So when I meet a family and I say, Hey, how are you guys are dealing with conflict?
They say, we never have conflict. I go, really? You just don't have it out loud. And, you know, we, we kick the can down the road or we bury it and, but a conflict gets buried, gets buried alive and it comes back to haunt you. So, we have to find a way to get that out. And part of the family values might be we'll engage in healthy conflict.
I don't know, but that, setting the family values is often a great tool. Um, you know, a near term vision for, or vision statement for the family is a great tool. Crash testing, which we've talked about. A family employment policy, what are the rules, terms and conditions, if you want to work in our business?
Um, do you get paid more because you're a child of the owners, or do you get paid less because someday all of this will be yours? Do you get the same holidays, um, as anyone else, or do you get more, or, um, do you, what about perks? Uh, what about, I had one business where the daughter, one daughter working in the business got a new F 150, but guess what?
She was out in the field and she needed a new truck, so they bought her a new F 150. The other daughter, who was the receptionist, came in and said, when do I get my F 150 to her dad? I'm sure you love me as much as you love my sister. Here we go to fair and equal again. Yeah, and the confusion of what's, what's a family value.
And what's a business value. I know compensation is one of the ones where that comes up all the time. Two brothers working in the business. Do they get paid the same? They're equal shareholders. Their brothers, so their parents love them equally, are they doing the same job in the business and should they be paid the same?
Leah Tolton: [00:42:32] Can that family employment policy be used to accomplish some of those things that are difficult for parents? Absolutely. You know, things like, you're not ready, so maybe the policy covers off some things that you might have to do to be ready. Maybe you need to have some... Some kind of education or a trade or you've had to work in these roles in the business.
Gregg Becker: [00:42:50] Yeah. I've got about 10 or 15 things I put in each one. It depends on the scale of the business complexity, but those kinds of things you can work in the business in these kinds of roles with this kind of qualification skills. Um, however, your performance has to be X, Y, Z, we, we will create a standard in there.
Um, you are paid. Market rate, you know, the same or not, you know, we have discussions around each of those points so that yes, there's a clear understanding. And so when some young person is going to come into the business, because they don't know, especially if they've never really worked and they're going how they don't even know how to ask, sometimes it's a really sensitive thing.
How do I ask my mom if. You know, I can use the, the truck this weekend to go to Jasper, you know. Right. Or they might have an, um, uh, a disproportionate sense of what they might be entitled to or what the value of things is. So again, before we get into the situation, let's have those conversations and set the rules.
And that way, by the way, there's never surprise people can be at ease. Um, when someone says, Oh, I think I should get a raise and you say, well, actually, here's a family employment policy and here's how we do performance management and how we do raises. Um, and so it's not a, this is about you. It's about this is how we conduct ourselves as family working in the business.
And so no one's getting picked on. It's just a fair process. Um, a great tool. Um. A strategic plan or an ownership vision, great tool, not done very often, but it's super helpful to kind of get.
Leah Tolton: [00:44:17] So is there a difference between the strategic plan you're describing now and the ownership group? Uh, from what we would see or what we are accustomed to seeing in the business environment?
Gregg Becker: [00:44:27] There is. Yeah. The business one is pretty well understood, a strategic planning process. The ownership one typically, um, doesn't get into the level of granularity because they're not close to the business. They're flying at 50, 000 feet. They don't know about the, the operations and can't get at that level of specificity, but they can say, yeah, Here's how we see from an ownership perspective that the vision here has a we see the values.
Here's how we see the um, where we want this thing to go over time. Here's how we see how family members will be employed or not. Like that's an interesting piece of the plan from an ownership perspective and talking very explicitly about what our expectations are on growth. You know, is it 5 percent a year?
Is it 10%? Is it 50? What about risk? How much risk are we willing to take on as a family? And the value. It's partially in stating those things, but the real value, honestly, is having the conversation to say, because most people don't, to say, how much risk are we willing to take on if management brings in this crazy plan, which, you know, if we hit it, if we get it right, we'll hit it out of the park.
This is going to be wildly profitable, but there's a lot of risk and it could distract management from the core business and stuff. That's, that's a significant strategic question and ownership should have input to that.
Leah Tolton: [00:45:40] I see another connection here. The connection that I see is that if the owners are clear about things like growth and risk, you know, that will affect return.
I think that also plays into the decisions and the messages that the parents need to deliver when they're having those difficult conversations. This is what the owners have decided they are going to leave in the business. To facilitate growth. Therefore, certain amounts will not be coming out because they need to be left in the business to facilitate growth.
Therefore you can expect when you become an owner, that this is what will be available to family members who are owners in that context, so that you create some certainty and again, some predictability to form the basis for expectations there.
Gregg Becker: [00:46:26] Yes, absolutely. And you know, it's so helpful for people because if they don't know that they're.
Their expectations and their assumptions are going to be whatever they've got, right? So you have to help educate them. And to say, hey, we leave 50 percent of our net profits in the company every year. The rest is available for distribution or whatever the rules are. And here's why we leave it in the company.
So there's an education process and that's so great. Um, it also, of course, in times of transition, it's critical because liquidity is often what we need to create. For an exiting owner to get out of the business. Mm-hmm. , they have to be able to get their cash out, uh, to take care of retirement and estate planning needs.
Um, if the company is just saying, well, yeah, but we're going to use all the cash for growth now there's a bit of a, a brawl brewing. , right? Potentially because we have a different view of what we should do. So there should have been a conversation already around profitability and liquidity. Um, and for this period of time, we might do it differently.
Then we, you know, yes, for the last 10 years, we would have absolutely invested in that new growth area, but the next four years, because we're getting paid out, we can't do that. Right. And you just need to understand that. And after that, and it's all yours. Knock yourself out, right? You get to make all the decisions then.
Yeah, but we've already established the growth goals for liquidity and Established the risk profile. We've already talked about what we do with profitability and how much growth we're going to chase after and maybe for transition Purposes we're transitioning leadership. There's a lot going on in our business right now We're going to manage the core business and we're going to transition how much appetite and capability do we have for risk right now?
Do we really want to have new leaders jumping into significant risk positions? Maybe not. So, you know, creating some real clear expectations around that and even metrics for it is, I think, very, very helpful from a transition point of view as well.
Leah Tolton: [00:48:14] The themes that I have heard in this conversation are.
It's important to have given thought within the family as to how information is communicated, how decisions are made, whose voice is heard, what process is employed in order to communicate and decide. I've heard that it's important for the owners to have a strategy as well for them to think about how they would like to direct the business to operate in order that their risk profile, their growth expectations or their return expectations are met.
I've heard that the business. Also benefits from input from decision makers being the board of directors from plans for growth and profitability such as strategic plans. The overarching theme I hear is talk about it in advance, make the plan in advance, execute the plan. Have I got that right?
Gregg Becker: [00:49:07] Absolutely. And consider the plan broadly. You know, if we think of this, if we think about the ownership. Transition solely from a transactional point of view. Right. Oh, I want to move my shares to the next generation or, oh, I'm going to sell it to a third party or whatever it is. There is so much left on the table that we could have optimized for the family, for the leadership team, for the business to protect the business and protect the family.
Um, and so it is not just a transactional event and that's why it takes longer. Actually, why we have to do a little bit of pre work often, and then, by the way, by the time you get to the transaction, it's way easier, because we've already agreed a whole bunch of things, you know, when you get to a USA, and we're saying, how do, you know, shareholder's agreement, sorry, um, I know you know that, but when we get to that, and we want to talk about what happens if some of these crises appear, and we've already had those conversations, well, papering that transaction is way easier and more efficient.
I Um, it actually helps them make better decisions so they don't have to react in the moment when their, um, counsel says to them, Well, what do you want to do about the five D's? You know, and, uh, they go, Oh, we've already talked about that. Here you go. Fantastic.
Leah Tolton: [00:50:17] What I see occasionally in discussions with families when we're at the point where we're thinking about how they want their unanimous shareholder agreement to work is that if they're confronted with things that perhaps are overwhelming or they can't clear the hurdle, they haven't got through that level of thinking to decide what their options are and what options they choose, then we see people cancel meetings.
We see projects not finished. We see Uh, people who used to attend meetings stop attending meetings, you know, and so it's at that point that we sense that there's some other non legal thing, non legal input or non legal of impact that is preventing us from getting that project complete. Can you comment on that?
Gregg Becker: [00:51:01] Yeah, and you know, when you have that, and I've heard the same thing, by the way, from my accountants who have this beautiful tax structure and strategy, uh, but it hasn't considered all these other factors, and then they get to the point where they're actually going to, you know, do their structure or whatever, and all of a sudden people aren't cooperating or, and they're going, well, I thought we were moving ahead here, and there's some other impediment that has not been talked about.
Exactly. And, uh, yeah, and it's so frustrating, but it didn't have to be that way, and so part of my, Uh huh. I implore people to, you know, generally like take the time to do this really thoroughly and well, and then all that transaction stuff just flies. It's actually way better and people already get it.
It's, it's quite simple. That comparison.
Leah Tolton: [00:51:41] Well, I intend to take your advice to heart.
Gregg Becker: [00:51:45] It's great talking with you.
Leah Tolton: [00:51:46] It's really great to talk to you too. Thank you so much for taking the time, Greg, and for sharing your insight and wisdom with us today.
Gregg Becker: [00:51:51] Yeah. Thank you very much. Take care.
Leah Tolton: [00:51:53] Thanks for joining me on this episode of Beyond Succession, a series within the Bennett Jones Business Law Talks podcast. Make sure to hit the follow button on whatever platform you are listening from so you get notified whenever we release new episodes. Also don't hesitate to reach out if you have any questions about challenges or issues that you are facing in your family enterprise.
Take care. I'll catch you in our next episode.