Mediators add value to Succession Planning

Succession Planning in the context of a family enterprise is essential to plan, for the future and unexpected changes. In this article, I will outline line how a mediator may be a useful member of any multi-disciplinary team with a succession planning mandate.

A massive transfer of assets and wealth is underway in Canada. A report by The Canadian Federation of Independent Businesses estimates that over the next 10 years as business owners get ready to retire or move into other ventures, $1.5 Trillion CDN will be transferred. Interestingly, the same report indicates that although 49% of business owners indicate that they have a succession plan, only 8 % have a written succession plan outlining how the transfer will occur. At the time of the report was written, it was estimated that 46 % of business owners intend to sell or transfer their business to a family member and the other half intended to sell the business to a third party.  Recently the Canadian government passed Bill C-208 which deals with the tax treatment of intergenerational transfers in small to medium sized businesses in a more favorable way. The new tax treatment on intergenerational transfers may result in family enterprises thinking more about “keeping the business in the family”.

It’s too soon to know if the Pandemic will affect the anticipated transfers. I have wondered if families are more adaptable and willing to consider the big changes involved in a succession plan, as they have become more used to big changes that came about because of the pandemic.

Succession planning can involve extraordinary and transformative changes to the organization and to the family. To be a successful exercise, time, and a commitment to a change process on the part of the family and business stakeholders is required. To make that kind of commitment, the client(s) and advisors must be ready and adaptable. It’s a daunting task, and resistance to the process can arise. Some people/families can manage uncertainty and changing circumstances and others find it difficult. Anyone embarking on a succession planning process with a client will find that the greater their understanding of the people involved, how they have managed changing circumstances in the past and how quickly or slowly they want to move and how much they are prepared to change the organization, the better they are able to coach their clients.

We are familiar with what is known as “first order change”[1] which can be described as continuous and progressive changes. Examples of first order changes include changing roles and responsibilities, fine tuning busines operations, establishing family meetings and retreats, establishing corporate governance policies, setting sales targets and   policies, for the business. These type of changes takes less time and effort and are generally easier to achieve.

The changes that are made as a result of a succession plan are sometimes called “second order change” [2] because the changes are revolutionary and discontinuous. Succession may involve the transfer of ownership responsibility to the next generation or to outside managers and may also involve changes to the corporate culture, vision, and strategy. The process takes time, involves interconnected issues and input from stakeholders and advisors. Some families may decide they do not want to make revolutionary change and that could be the end of the process until an event occurs that requires attention to what’s next.

A succession plan is more than a series of decisions, transactions, or legal agreements. It encompasses an emotional process within the organization, and the family. Advisors charged with a succession planning engagement must understand how to deal with the emotional process and family dynamic patterns that may arise when thinking and talking about change. The changes that will be implemented in a succession plan may affect some family members’ sense of identity and purpose within the business and the family. This can lead to resistance or conflict.

It is well known that there are at least three interconnected systems in a family enterprise, the family, business, and the ownership systems. The members of each system will have different perspectives, wants, and needs, particularly when significant changes are being considered. A change in any one of these systems will affect the other systems. This is what often makes succession planning in a family business challenging. The interconnectivity of the business, ownership and family systems make decisions more personal, less objective, and more complex because family objectives and values will be considered in business decisions.

It may be necessary to coach the people and the systems how to be more adaptable and less resistant to change. In addition, there will be the delicate task of helping the stakeholders think about the systems and the individuals and to balance the many perspectives. The focus of individuals will reveal the conflict management style of those involved. If the concerns are self-focused, there may be a competition between system members about changes, which may lead to conflict. If the concerns are other-focused some people may accommodate or acquiesce to the will of others and not seek what they want which may lead to an uncomfortable peace and perhaps conflict later. If a balance between self-focus and other focus can be reached, the more collaborative decisions can be made and greater acceptance of the plan and the decisions.

A mediator with an understanding of family systems theory and how to deal with emotions may be a helpful addition to the team working on succession planning if resistance or conflicts arise. In my experience, a process can be designed, considering, the family and circumstances. I have found that shorter meetings with a realistic agenda, the presence of the necessary people, and time apart (days/weeks) to consider what is being discussed are helpful. Mediators are trained to reduce conflict and build trust, re-frame positions, and assist parties come to agreements and accept there may be some conflicts that are not resolvable. Some people are more comfortable calling the process I am describing “facilitation” as the word does not imply conflict. The name of the process does not matter to me, it’s the skills of the mediator that are important. The process requires an intention on the parties’ part to discuss defined issues with a neutral third party “facilitating” the discussions.  The third party is given authority to protect the purpose and intention of the meetings and assist those present at the meetings to articulate and discuss their objectives and make plans or decisions. A mediator brings the additional skills of being trained to manage emotions, reduce anxiety, test the relevance or veracity of the “stories’, reframe positions and help the parties come to decisions and agreements and sometimes repair or preserve relationships. A mediation process over time with the stakeholders and trusted advisors can be helpful when considering the second order changes that often are part of a succession plan. Keeping people productively engaged in the process can result in positive outcomes. If you are involved in a succession planning engagement you might consider consulting with a mediator about how to set up the circumstances for more successful meetings and to have a mediator on call should disputes arise.

Robin Dodokin is an experienced lawyer, mediator, and arbitrator with fluency in family systems who enjoys helping people repair or preserve relationships and make decisions about their business. She can be reached at robin@dodokinlaw.com.

[1] Hilburt-Davis, Jane and Dyer, W. Gibb JR.”, Consulting to Family Businesses, A Practical Guide to Contracting, Assessment and Implementation”. San Francisco, CA: Jossey-Bass, 2003, pages 98-99

[2] Ibid.99