How to avoid the drama that can come with succession planning

There’s a reason so many movies and television shows are about succession.

Money and the transfer of power across generations can be rife with tension, sometimes putting the family business at risk, which makes for a good story.

In real life, many families try to avoid the drama that can come with preparing the next generation to take over the family business.

Succession planning that includes business and behavioural elements can help smooth the transfer of power while ensuring business continuity and setting it up for future growth.

Some experts believe psychological factors, such as motivation and relationship dynamics, are just as important as understanding the business operations and budget.

“The psychology around family dynamics is really at the top of the pyramid, especially when it comes to succession planning,” says Bill McLean, a partner at Richter, a business family office, who works with some of Canada’s wealthiest families.

A lack of succession planning can fuel family tensions

Too often, families ignore the psychological factors that can influence the process of preparing individuals to take on leadership roles, Mr. McLean says, especially when it comes to thorny issues like passing on control of the family wealth or the family business to the next generation.

A recent HSBC report suggests many are procrastinating, finding two-thirds of business owners in North America have no succession plan in place.

“There’s a general concern that the transfer of wealth and control will create tension,” Mr. McLean says. “In turn, families avoid this process for years.”

He believes a lack of planning can fuel future strife.

“In the absence of planning, negative emotions are more likely to arise because there isn’t clarity, consistency and understanding of what’s expected from each family member,” Mr. McLean says.

Well-devised plans that include input from all relevant family members can increase the odds of a harmonious wealth transition, says Tasso Lagios, managing partner at Richter.

“Doing this right, however, typically requires time, reflection and education for family members,” Mr. Lagios says. “That’s especially so for the next generation, who need to be educated about the nature and values of the family wealth and the expectations for them to be stewards of that wealth.”

He says many of his clients come to Richter for business and tax planning and are reminded about the need for succession planning. Through discussions about finances, retirement, and estate planning, Mr. Lagios says his team sometimes discovers how anxious parents are about succession. Many worry that their children will become dependent on the family wealth instead of charting their own path.

He says the next generation also has fears about their role in the family business. Some worry about whether they will have a place in it and the ability to carry on the legacy, while others are concerned about how their parents would react if they chose not to be involved.

Mr. Lagios says succession planning can help to address these issues by creating processes and structures that facilitate constructive, respectful dialogue.

An example is the creation of a family council, which includes family members, such as parents and adult children, who address and oversee important issues they face. It’s a governing body for the family, similar to what a board is to a corporation.

“A family council also creates a safe space to grapple with family dynamics and emotions, where they can be solved before they negatively affect any financial and business decisions,” Mr. Lagios says. “The council is where the art and the science of succession planning come together.”

Start succession planning early

Mr. Lagios says succession planning needs to start early, once the adult children seem mature enough to comprehend the necessary information.

“Weaving in values about wealth is often a gradual process,” Mr. Lagios says.

He says family offices can help by offering interactive activities and experiences that teach concepts such as budgeting, investing, risk tolerance and diversification. Starting the education earlier also helps parents better understand their children’s aptitudes and desires to get involved in the family business.

“They may come to realize, for instance, that one child truly has an interest in running the family business, while the other children may have other pursuits in mind,” Mr. Lagios says.

Being proactive ensures neither the parents nor the children are surprised, resulting in a reduced risk of conflict, hurt feelings and resentment, he says.

“The problem is many families don’t have the tools to accomplish these tasks, and they don’t know where to find them,” he says.

Mr. McLean says multi-family offices such as Richter can provide objective analysis and advice to help families ensure the right processes are in place to facilitate successful succession planning.

“Not everyone may agree with it, but a well-devised plan founded on open communication among everyone involved fosters consistency and understanding,” Mr. McLean says.

Join The Globe and Mail for a webcast that delves into why these tensions occur and how psychological factors can influence decision-making during succession planning. Attendees will gain valuable strategies for overcoming emotional biases, fostering trust, and improving communication, between members of different generations.

Register for this free virtual event happening June 17 from 12:30-1:30 p.m. ET.

Advertising feature produced by Globe Content Studio with Richter Management. The Globe’s editorial department was not involved.