Mapping of conflict situations during the succession period

2. Mapping of conflict situations during the succession period Succession is a complex transition process that involves change and where several stakeholders within the family participate.

In this section, we present tools that will help you understand how conflict is created and the role each stakeholder plays in it.

Innovative training to promote a sustainable succession in family based SMEs

1

2.1 Sources of conflict during succession INTER-GENERATIONAL DIFFERENCES Family members can have different goals and values towards the business, especially between different generations. The leader might be reluctant to let go of the business, especially if it is the founder who has to let go of responsibilities that previously have always been exclusively his/her domain. The successor, on the other hand, might be impatient to change the direction of the business or adapt certain strategies and feels held back by influence of the owner on this.

MISMANAGEMENT OF EXPECTATIONS WITH SUCCEEDING GENERATION When there are multiple members of the younger generation active in the business, it can occur that there are conflicts because not everyone is happy with their future roles within the business and how the governance structure is being divided. An important step in the succession planning is considering the likelihood of a sibling rivalry occurring. While it is a highly emotional issue, because it often is a matter of conflicting personalities with siblings not being able to agree, it is important to READ A CASE STUDY point out that a timely planned and executed succession strategy can do much to remedy or even avoid a sibling rivalry from flaring up.

Innovative training to promote a sustainable succession in family based SMEs

2

Josh - Case Study “In a typical example, a small business owner — we'll call him Josh — spent his life building a company as a general contractor. He accumulated trucks, trailers and machinery, among other assets — not to mention a good name and long-held reputation. The company was by far his greatest personal asset, and he relied on it for his primary income.

His daughter, Jennifer, earned a business degree and worked loyally alongside her father for years. She became a close confidante. Her brother, James, worked for the company shortly during college but later pursued an unrelated career.

As he approached retirement age, Josh became aware that Jennifer expected one day to inherit the company.

Nothing would make him prouder than to see her carry on his legacy, despite little discussion or planning on the matter. Jennifer saw the business as her birthright, not to mention her primary source of income.

Innovative training to promote a sustainable succession in family based SMEs

3

Josh – Case Study Josh knew that leaving the business to Jennifer might alienate his son. James began to assume his sister would inherit the company, and his attitude toward the family soured. Josh understood the need for a succession planning, but he needlessly neglected it as the situation worsened. He reasoned that as long as he remained in charge, he could avoid deeper conflict and tearing the family apart.

What Josh failed to consider was a sudden illness or even death. Without proper planning, chaos was almost certain.

The company would likely implode and the family would splinter. Infighting would lead to litigation and quickly erode the assets Josh worked a lifetime to amass.

Had there been equal yet separate assets, Josh could have easily handed the business over to Jennifer and transferred the balance of wealth to James. But that's rarely the case.

For this reason, there are many effective strategies to arrange an equitable distribution.

One approach ensures that Josh continues to receive income from the business after retirement. He could sell his business to his daughter with a self-cancelling installment note shorter than his life expectancy, and the balance of the note would cancel upon his death.

The advantage is that if Josh dies before the note expires, the remaining value of the installments is excluded from his estate. Josh could set aside payments to provide a greater inheritance for James, who would see that Jennifer was not simply gifted the business.�

Butcher, S. (2017). Sibling Rivalry takes on a new meaning when for the family business. Crains Cleveland Business.

In: http://www.crainscleveland.com/article/20170701/blogs05 /170709999/sibling-rivalry-takes-new-meaning-when-fight ing-family-business

Innovative training to promote a sustainable succession in family based SMEs

4

www.skills4succession.eu Skills4Succession

The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein .

Innovative training to promote a sustainable succession in family based SMEs

5