Mar 1, 2011 12:00 PM

Family dynamics play an important role in the success or failure of the family business

By David Thane Leibell

Leo Tolstoy begins Anna Karenina with the line: “Happy families are all alike; every unhappy family is unhappy in its own way.” Much the same can be said for successful multi-generational family businesses as well as family businesses that are unsuccessful in succession planning. Successful multi-generational family businesses are all alike; they follow certain tried and true succession planning best practices, with a particular focus on family dynamics, to ensure that the business passes successfully to the next generation. Family businesses that fail to plan for proper ownership or management succession typically are unsuccessful in succession planning because they allow unique family dysfunctional behavior to replace the necessary best practices for proper succession. As a result, they not only destroy the family business, but also frequently destroy the very fabric of the family itself.

Successful family business succession planning is an evolutionary process that requires tremendous effort by the family and its advisors (including non-family managers) over many years. Although a deep understanding of business strategy is important to succession, it pales in comparison to the importance of family dynamics to a successful succession plan. The business owner or advisor who ignores family dynamics in a succession plan does so at his peril. The most critical issues related to a successful family business succession are family-related rather than business-related. In “Correlates of Success in Family Business Transitions,”¹ the authors of the study found a consistent pattern of factors that led to breakdowns in the succession process. Sixty percent of succession plans failed because of problems in the relationships among family members. Twenty-five percent failed because heirs weren't sufficiently prepared to take over ownership and management of the family business. Only 10 percent failed because of inadequate estate planning or inadequate liquidity to pay estate taxes. That means that 85 percent of family businesses fail in the succession process due to inadequate planning to resolve intra family disputes over the business and the inability to groom successors to run the family business.

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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