GENERATIONSTHE SUCCESSOR ISSUE WINTER 2018

IN THIS ISSUE:Assessing Successors

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Family Business Succession

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PREPARING NEXT GENERATION LEADERSHIP

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GREGG BECKER

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President, Predictable Futures Inc.

O ne of the first things to

note on next generation

leadership and

preparation is that they actually

do need to be prepared though

(they may not “know how”),

and they cannot do it alone. In

fact, some of the most critical

development pieces need to be

facilitated and led by the current

leadership (often the founder).

This brings a challenge, since most founders – while superb at running the business – are not necessarily equipped or experienced with developing next generation leadership, especially if the

coming leader(s) are from within the family, which brings its own issues.

A few of the top enablers of effective transition to succeeding generations include:

1. gaining relevant experience outside the family enterprise;

2. getting clarity on the rules and terms for next generation leaders coming into the business; and

3. ensuring the successors have a firm grasp on financial concepts and reporting.

The subject of successors having experience outside the family firm is one where there is a good amount of consensus. Most successors themselves intuitively understand that their credibility as leaders of the family business will be boosted by having “earned their stripes” elsewhere, where

the family influence does not affect that experience.

Not only does good experience outside the family enterprise add to successor credibility, it also adds their experience and perspective in ways that cannot be gained working inside the firm. This external perspective is valuable when they come back into the firm and add value by bringing a more “objective” viewpoint on the family enterprise.

A second way to effectively prepare for transition to the next generation is getting good clarity on the rules, terms and conditions for that generation coming into the business. For many families, the kids have worked in the business off and on for years, doing odd jobs and summer work while in school, without much thought about any specific “rules” for when

2 GENERATIONS | WINTER 2018

Founder & CEO Predictable Futures Inc.

I was recently surprised with an unpredictable response from a soon-to-be successor, who also caught his mother and father (Founders) off guard. It arose as the estate planners (lawyer, insurance advisors, and tax team) were reviewing documents to pass the share ownership and equity growth to the next generation. Panic set in for one of the sons when he suddenly realized that while the transfer of shares was a relatively simple legal transaction, the assuming of leadership responsibility as an owner was anything but simple. This successor was unprepared for the entrepreneurial realities of leadership, corporate perpetuation and responsibility.

A well designed tax and legal estate or succession plan does not equate to succession readiness for active ownership, and owning business issues is more challenging than owning shares. The parents/founder

had not confirmed whether the next generation was passionate about ownership, and had not put in place the training needed to develop their heirs. The heirs definitely wanted the business to continue as a source of employment and earnings, but the daunting task of ownership uncovered a significant lack of preparation. This confrontation of the entrepreneurial reality could have been greeted with excitement, rather than anxiety, if solid heir preparation had taken place. If as much time had been spent on examining the credentials of the heirs as on the credentials of the tax and legal advisors, this situation could have been avoided.

Addressing Successor Issues and Solutions

There are a variety of addressable issues in succession, but here are some fundamental priorities for founders, successors and advisors to consider:

1. Does the next generation have a passion for the business, and deliverable as owners and leaders?

a. Have the founders asked (and have successors responded) about interest in ownership, management, or just future employment roles?

b. Have the differing responsibilities of ownership, management, and employment been discussed?

c. Is the next generation actually capable of management or ownership? Has a curriculum been developed that aligns successor goals with the direction of the business?

2. Does the founder’s retirement depend on increasing success and cash flow from the business? i.e. How much is enough and for how long?

a. Has the competition for capital among the founder (retirement), the business (working capital) and the new owners (income) been discussed?

GORDON WUSYK

ASSESSING SUCCESSORS

FAMILY

• Children and grandchildren are added

• Marriage and divorces happen

• Spouses can work in the business

• Kids move away for college, jobs and marriage

OWNERSHIP

• Children want to buy into the business

• Non-family partners come into ownership

• Founders pass, leaving spouses as prime shareholders

• The business needs capital to continue growing

BUSINESS

• What was once a small has become larger

• More employees, products, services

• Geographic growth means a need to manage more at a distance

• Increasing size means more complex internal processes, cash needs

AS TIME PASSES, THE FAMILY &

BUSINESS BECOMES MORE COMPLEX,

LARGER AND CHALLENGING

3PREDICTABLE FUTURES INC. | BUSINESS FAMILY CENTRE

Preparing Next Generation Leadershipcontinued from page 1

used for family members as other employees?).

Having the conversation before the new family member starts (or as soon as possible after) and getting agreement on the ground rules creates clarity for all, sets expectations correctly, reduces friction in the family and workplace, and increases trust and communications inside the family.

Finally, ensuring a level of financial literacy for family members entering the business is very important if they are to understand how the business works, what its drivers are, and gain an appreciation for how much effort it takes to earn a dollar as a business.

Courses in financial literacy are easy to find (check out the local community college or university’s faculty of extension, who often offer a course in “finance for non-financial managers”).

employment in the business becomes more permanent and intentional.

Topics that should be discussed and decided include things like: compensation (is it market based or otherwise?), role definition (is it a well-defined, existing role, or a vaguely understood and new position?), what perks and benefits – if any – does the new family member get upon entry to the business (same as the rest of the workforce, or are there special considerations?), are certain roles in the business reserved for family, what is the reporting requirement for family members inside the business (to other family members?), and what about performance requirements/reviews (is the same standard and process

The intent is not to make anyone an accountant, but rather to ensure they have enough understanding in this crucial area that they are able to grasp what the most important numbers are to watch, why those numbers are important and where they come from (for example, the most important expense numbers and how they are derived; how revenue results are built (price, volume, and so on).

While there are many other things we encourage families to spend time on, such as successor training inside the company, assessing successors, ownership parameters, and exit planning for founders, paying attention to the three successor preparation topics above provide a solid foundation for next generation leaders coming into the business and create a trajectory for transitional success over time.

b. Will the successors need to take on debt to buy shares or will the founder’s share redemption be funded by corporate revenue (earnings) over time?

3. Is the Founder capable of becoming the Chief Training Officer (CTO), with potential assistance from key managers, and possibly a Board of Advisors to support the founder’s coaching & training skills?

4. Has the family/next generation done a strategic plan to

determine the strengths, weaknesses, opportunities and threats (SWOT) for the business and the family that enhances both family and business confidence going forward? This approach equips the next generation for a much different tomorrow than what exists today in terms of people, technology, markets, trends and the economy.

Has the family assessed the needs and aspirations of the family members active in the business vs. those who are inactive, in order to deal with the “fair vs. equal” dilemma that many Founders

and successors face? How should the division of assets be determined, so there is an appropriate and healthy solution to loving each sibling?

Has excellent family communication and trust been established to transparently discuss these types of issues, personal goals and fears before documentation or training is been established?

“If a man does not create a succession that follows after his stewardship has ended, I would say he has failed”.

Dr. Leon Danco

4 GENERATIONS | WINTER 2018

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For further information on any of the content in this newsletter, or to be added to or deleted from our mailing list, please contact:

Predictable Futures Inc.11630 Kingsway Avenue, Edmonton, AB T5G 0X5

PH: 780.702.2499 FAX: 780.428.1410 info@predictablefutures.com

FAMILY BUSINESS SUCCESSION

Whitson Contracting Succession

Whitson Contracting is a successful general contractor in the Edmonton region that focuses on commercial and institutional building. Founded 20 years ago, by Phil Whitson, the company has grown and expanded over the years, and in the past 5 years, has transitioned from Phil to his sons – Connor, Clint and Layne. All three sons are now active in leading the business, and Phil has done a great job of creating space for them to step up and step into that leadership.

VETS Group Succession

VETS Sheet Metal was founded in 1921 by WW1 veteran Fred T. Rayner. The

company has grown through the years to be a construction services company including VETS Sheet Metal, VETS Facility Services and VETS Electrical. Fourth generation successors, Sean and Erin Rayner, moved to Toronto for their self-described ‘externship’ from the family business after both completing Business Diplomas in Marketing at NAIT in 2002. Two years later 3rd generation owner David Rayner called his kids to share he’d had a serious health scare and would need immediate, extended, time away from the business – ‘ if you’ve ever had any interest in the business, now is the time to come back’ was the conversation. Together, the siblings returned to Edmonton and created

NEW AT PFI Effective January 1, 2018, Gregg Becker is stepping into a new role as President for Predictable Futures.

This continues the PFI leadership succession process, and positions Gregg to provide increased leadership to the firm going forward. Gord Wusyk will continue as founder and CEO.

a business plan while navigating the waters of a health crisis in the family. In the first year, Erin chose to leave the business but continued to help Sean with the business plan. Sean had always seen himself at the helm of the family business, but at 24 it was considerably earlier than anyone anticipated – especially him. After many long conversations and the help of his advisors, David retired and Sean bought him out of the business. Sean has been President and CEO since 2005. In 2016, after running her own marketing company, Erin rejoined the business as the Business Development and Marketing Manager. Succession is a path of communication, authenticity and trust.

Photo Left: Whitson Contracting

Photo Right: VETS 4th and 5th generation:

Alison Rayner, Sean Rayner, Rhys Rayner, Erin Rayner

Photo Credit Haley Shandro

We are always happy to assist others with their transition issues, and appreciate your referrals.