The succession-planning process is a critical event in the life cycle of family businesses. Developing a family business succession plan is often a complex process and can take weeks or even years. We believe that with the appropriate planning, communication and inter-generational team work, succession planning presents a significant opportunity for a family business to become stronger as it passes from one generation to the next. For family businesses, it is vital to facilitate an open and honest communication process involving key family members in order to ensure that the challenges and difficulties associated with family business planning are overcome. 

We understand that each family business is different. Each succession plan needs to be tailored to the situation presented and specific steps taken to understand those unique businesses and what support they need in order to be able to put an effective succession plan in place.  Families can benefit from working with an adviser who is competent, experienced and objective, who can support them in making the right decisions for their business, whether regarding the development of a long-term succession plan or identifying any short-term emergency succession requirements.

Figure one below outlines the typical process that takes place when developing a succession plan.

Figure one – typical succession planning process

Managing complexity

The two primary issues facing owners of family businesses when planning the passing on of their business are the complexity of the issues that need to be considered and balancing the needs of the family with the needs of the business (which can often present significant challenges). The complex technical issues that must be addressed include developing estate strategies, investment structuring, building a long-term business strategy that stakeholders trust and developing talent to take over key roles in the business when required. 

On top of this, family issues have to be considered. Managing interpersonal dynamics and numerous different personalities is a key part of succession planning. Good communication within the family and a clear bespoke family governance structure are generally the most effective ways of ensuring that any underlying issues or conflicts around areas such as legacy and entitlement are addressed. In order to be successful, family businesses need to be fully focused on addressing external challenges rather than on managing internal conflicts. 

Taking these challenges into account, we facilitate open and honest discussions in relation to family members’ roles in, and aspirations for, the family business going forward. One-on-one discussions between family members and their advisers are essential to understand how key individuals feel about the business and about their role in the succession plan, including if they see themselves working in the family business or pursuing a different career.

The facilitation of the communication processes outlined above can be particularly important if communication within a family is generally poor, if the founder or current manager is finding it difficult to relinquish control, if nobody in the next generation is showing an interest in taking over the ownership and management of the business, or if parents are looking for a way to pass the business on to their children in an equitable manner.

On the completion of these discussions, families should possess the information and understanding required to put in place an effective family governance structure and to form the best possible business succession plan.

Family governance

In our experience, the foundation of a successful succession plan is an effective family governance structure. One of the key challenges facing family businesses is managing the interplay of business and family relationships and complex family issues.  A well-designed and properly implemented family business governance structure results in greater harmony between family members, a more-focused business and easier transitions between generations.

Care and sensitivity are required by advisers to translate the key outputs of the communication processes and discussions outlined above into a written and formalised family constitution based on an agreed vision and shared family values. This family constitution will outline the policies and procedures to be followed in respect of the management of the family’s assets, wealth and the business itself, preventing friction and doubt in decision-making, and creating clarity of roles and responsibilities.

A family constitution typically addresses fundamental issues, such as:

• Vision and values of the family
• The family's involvement in the business roles and responsibilities
• Board membership
• Long-term strategic goals of the business succession management
• Share ownership dividends and voting control
• How and when to employ non-family members
• Family meetings
• Family office
• The role of the Family Council, if appropriate

It can be beneficial to set up a family council, board of directors or other family business forums, as appropriate in your circumstances. This can involve working with your advisers to develop employment and remuneration policies, supporting families in defining the various roles, responsibilities, rights and privileges of the various stakeholders and, once agreed, implementing their decisions.

We are also often asked to review existing governance arrangements against family business governance best practice. Whatever the assignment, we believe in documenting the agreements and decisions that a family makes. This puts the family in a strong position to develop an effective succession plan.

Tax and legal advice

Once a succession plan is agreed, the legal requirements and tax implications will need to be considered. Deloitte is experienced in providing advice on these matters and facilitating discussions within the family in relation to the advice.

However, we advise that despite their obvious importance, tax and legal considerations should not be the starting points of developing a family succession plan. In general, the essential building blocks of any successful succession plan are effective communication within the family in relation to their feelings about and future aspirational goals for the business and the proactive preparation of the next generation for the challenges of inheriting the business.

Please feel free to contact us should you have any queries.

Marianne Donaghy
Director, Tax and Legal
Office tel : +35314172473
Email : mdonaghy@deloitte.ie