Setting Up the Next Generation for Success

 

“I want to support my kids in preparing to take over the reins – how can we best prepare them while I am still involved?”

As a successful entrepreneur, you have likely dreamt of watching your kids take over the reins of all that you have built. Yes, despite years of envisioning their success, you may still question their readiness and capabilities, particularly if the transition involves a sibling partnership.

Transitioning the business to the next generation requires careful planning. How can you foster a successful sibling partnership and establish ownership and remuneration structures that reflect each sibling’s unique contributions? At Richter, we have guided many clients through this very journey.

The Challenge

Our client, a thriving entrepreneur and father of five, faced the complex task of succession planning and preparing his children to manage the family business. After following individual educational and career paths, four of the siblings united with their father to form a family office, where each sibling brought distinct strengths and contributed uniquely. Upon initially setting up the enterprise the father continued to retain the majority of decision-making authority. As time passed, he sought to create supportive structures that would allow him to step back while enabling the siblings to collaborate effectively for years to come.

Though their sibling relationships were strong, old family dynamics sometimes surfaced during business discussions. Without a clear framework for communication and expectations, this threatened to deter their success.

The Solution

To support this family, our approach included the following key actions:

• Facilitated family discussions: Richter facilitated one-on-one and collective discussions to identify the requirements that would build a strong sibling partnership.
• Governance framework creation: Through focused conversations, we established a governance framework to support the sibling shareholder partnership. This framework addressed a cross section of family and business priorities, including compensation, exit parameters and policies, business line reporting, and investment considerations, as well as a defined plan for delineating between business and shareholder matters so as to keep the fourth, non-involved sibling shareholder informed.
• Total assessment: Leveraging our human capital expertise, we assessed the family and business talent resources of the enterprise, identifying key gaps in support and defining roles that could be addressed through in-house recruitment or external expertise. The associated recruitment and transition process was also supported for these key roles.
• Advisory board: We established an advisory board to support the overall enterprise, which enables the siblings to make informed decisions collectively, while transitioning the father from actively involved in the day-to-day to a stewardship-focused role as Board Chair.

Throughout this process, we prioritized maintaining the positive family dynamics that motivated the siblings to work together. The entrepreneurial spirit instilled by their parents was invaluable, but it was essential to ensure the siblings were truly prepared to manage the family business and set mutual expectations as shareholders. Whether formal or informal, tailored governance structures are essential for a family enterprise’s success.