When advisors don’t function as a team

At 72 years of age, Nils Larson thought it was too soon to begin the transition of his family's publishing house to the fourth generation. He believed no-one in the business was qualified to take over his duties as publisher and CEO. Despite the urgings of family members on the company's board, Mr Larson took solace in the fact that his good friend and general practice attorney, Fred Wertheimer, was not pressing him to act.

Over the years, Scholastic Periodicals weathered several waves of industry consolidation and maintained a relatively strong position as publisher of several academic journals. Eight years ago, Nils Larson purchased the shares owned by his brother's family. Recently, he declined an offer from a firm that was acquiring specialty publishers. Nils was proud of the highly profitable industry niche he had secured for Scholastic Periodicals and saw no reason to make changes.

Nils's daughter, Annika, and his son, Robert, were the youngest members of Scholastic Periodical's senior management team. Annika was in charge of human resources, and Robert was the company's chief information officer. Both were highly capable managers but lacked financial management experience. Neither had run the company's core functions: editing and printing. Indeed, Nils was the only executive with general management experience and relied on his five department heads, four of whom were over 60 years old, for daily operations.

The Scholastic Periodicals board pressed Nils to identify a CEO successor. Although the board took no formal vote, its two outside directors joined Annika and Robert at successive meetings in strongly advising Mr Larson to begin a succession process. Only Nils's wife, Hilda and his youngest son, Rolf, were silent on the matter. At the family's annual retreat, their family business consultant presented the family with succession planning guidelines. However, Nils appeared disinterested.

Nils's tax accountant had been urging him to engage in a process to permit an orderly transfer of assets to his children. However, Niles refused to proceed without his good friend and legal advisor who had recently retired. When Nils acquired the Scholastic Periodicals Inc shares owned by his brother and became the sole shareholder, his estate plan consisted only of a simple marital trust and key man insurance.

Following the buy-out of his brother, Nils brought in a general manager while consolidating his own authority as CEO and publisher. Nils intended to promote his new general manager to the role of chief operation officer at a later date. Unfortunately, the general manager left the company after six months, claiming that Nils never delegated to him the authority needed to manage the printing, distribution and financial functions. As a result, Niles decided it was too soon to concern himself further with leadership succession or estate planning.

Nils's daughter, son and outside board members wonder if the company can compete should he become disabled or die suddenly. Annika reminds her father that their mother did not want to end up being the sole shareholder responsible for making business continuation and ownership decisions. The Larson's family business consultant and tax accountant both support the board's desire to engage in a leadership succession and estate planning process. Still, Nils continues to rely on the advice of Mr Wertheimer, his friend and semi-retired estate planning attorney, who no longer participates in board and family meetings – and rejects the entreaties of the other family advisors.

Commentary 1
Nils is confused. Everyone is giving him advice, and he's being pulled in different directions so that the whole subject of succession has become overwhelming. Nils is being asked to address two different things, and these should be separated into ownership succession and management succession.
 
Nils needs to articulate his vision and the legacy he wishes to leave. He might wish to use Mr Wertheimer to help him with this. If he favours a dynastic model, with family involved in both ownership and management, the decisions he makes will be very different from those if he wishes to sell and enjoy a more lavish retirement.
 
If Nils' vision is for family management, then he needs to be comfortable Annika and Robert are properly prepared for the role. Each needs help to focus on development, both functionally, personally and in the broader management sense. Each should have an independent assessment and individual development plans. Nils might also want to discuss with Rolf at this point whether he has any longer term aspirations to be involved.
 
In the meantime, Nils could hire in an experienced interim CEO whom he trusts to move the business forward in line with his vision until his children are better prepared to take over. By holding on to his shares, he will be able to retain overall control until he is satisfied that the business transition is stable. Whatever he decides, Nils needs to discuss this with his family (and later the board), to ensure they buy in to his vision and develop a plan they are all are comfortable with.

Juliette Johnson, senior manager of the BDO Centre for Family Business in the UK, spends most of her time working with large family businesses across the UK, Asia and Europe. juliette.johnson@bdo.co.uk

Commentary 2
A two-step approach could be used to address Nils' resistance to plan and the concerns of other family members. First, develop safeguards for the family and business should Nils lose capacity or die. Second, engage Nils and the family in a process to meet the long-term needs of Nils, the family and the business.

Immediate safeguards would include replacing Hilda and Roth on the board of directors or recruiting additional directors with good judgement and business skills. Fred's successor as attorney must encourage skilled advice, with Fred continuing as personal counsel to Nils. Nils' needs to revise his estate plan and ensure good decision-makers are available to the business.

The long-term solution might involve an inclusive process which would respect Nils' current desire to run the business while accommodating the concerns of the family and advisors. This could include writing a business history which would clarify the hopes, ambitions and achievements of the first two generations and recognise the contribution of Nils and his brother to the success of the business.
 
A values clarification process would help the family develop a clear set of core values for the business. Nils, Anita and Robert should write out their future goals and objectives and relate these to the core values of the business. This would determine whether Anita and/or Robert are suitable to lead the business into the future while Nils continues to run the business in the short-term.

Paul Milne is a consultant/lawyer working with families and owners of businesses throughout Canada. His firm, Simpson Wigle, is located in Hamilton, Ontario, Canada. milnep@simpsonwigle.com