In Prime Video’s hidden-camera comedy Jury Duty Presents: Company Retreat, which began streaming in March, the founder of a family-owned hot sauce company, Doug, announces his retirement and subsequent handing over of the business to his astonishingly unprepared son, Dougie. It’s played for laughs – most of the employees have been with the company for years and lovingly acknowledge that Dougie is in no way fit to run a company.
The alternative, however – being purchased by an outside group with unclear motives – poses a real-world question: when a transition of power occurs within a business, what happens to everyone else who depends on the company?
The goal for most business owners is to keep their company in the family – a desire shared by 72% of business owners, according to PWC’s family business research.
But hoping and planning are two different things, says Robert Goodman, an attorney at Kaufman & Canoles who advises families on succession. The transition of a family company to the next generation might appear like the clearest path forward, especially from the outside, but the reality is always far more complex.
The conversation about these transitions should focus “primarily on the ability and willingness of the next generation to run the family business,” Goodman says. “It works best when the next generation wants to be part of it, takes pride in the values and culture, and gains experience with mentoring from the older generation.” Each generation, he adds, should leave its own mark on the business.
Yet even willing heirs can create tension when there’s more than one child on the receiving end. In these cases, the conflict is not only over what is right for the business, but what is right for each child given their skills, their careers, and the lives they want.
“In many cases only one of the children is involved in the business,” Goodman says. “At the same time, the parents want all children to be treated fairly.” When it comes to succession planning, equal and fair can be opposing ideals.
If one child is more involved in the business to help it grow, the ownership, or at least the increase in its value, often goes to that child. The other heirs generally receive other assets, which may not add up to the same amount.
Ultimately, there are decision-making factors that extend beyond family dynamics. Most family businesses, to varying degrees, have employees outside of their family structure whose livelihoods they take into consideration.
“Parents often want to look out for loyal, longtime employees,” Goodman says, a reality that he believes is true to Jewish values. He says some of his happiest clients took his advice to provide for those employees.
Goodman encourages families to carry that level of generosity. He also points families toward giving. A donor advised fund created in the name of the parents or the family can honor the work they have done, while giving the next generation a push towards a role in charitable work and community service.
Naomi Limor Sedek, president and CEO of Tidewater Jewish Foundation, describes a donor advised fund as “a charitable checking account.” Donors get a tax deduction when they add money, and they recommend grants to charities. For families with a business and several million dollars in assets, she says, a supporting organization may be a better fit, with the foundation acting as “a family office” that convenes the generations to discuss their mission and run a grants process together.
Russ Cronin, TJF’s vice president and COO, says families name successor advisors, typically children or grandchildren, in the fund agreement, and those successors must be living during the original donors’ lifetime. They may also be limited to granting the income the fund produces rather than the principal. But Sedek says the next generation can extend a fund’s reach: if they contribute their own resources to the fund, they can name successor advisors in a modified fund agreement with the Foundation.
That opportunity for the next generation to contribute something of their own echoes Goodman’s biggest piece of advice: for parents not to deprive children of the pleasure of their own success. “If one or more of your children are involved in the family business, look for ways for them to add new value so that they may take pride in what they are accomplishing,” he says.
Passing the torch: Succession in family businesses
