The success of family businesses is critical to the success of the worldwide financial ecosystem. A key challenge for many family businesses is succession, where, in many cases, family dynamics, by their nature, can often overshadow financial considerations. This is leading more and more family businesses to not only bring in legal and financial advisors, but also experts on the psychology of working in a family business.
Over the next decade across the world, the family businesses that have produced a sizable percentage of the super-rich people worth of $500 million or more are going to have to address a changing of the guard. While some of these family businesses will be sold to third parties, a large percentage will work to transition the companies to designated heirs.
Adroit succession planning in these cases will make it increasingly likely that these super-rich families will continue to build their companies as well as amass greater wealth. We are finding a substantial interest among the super-rich to create dynasties. The conundrum is that a considerable number of billionaire family businesses are not effectively addressing all aspects of succession planning.
A considerable amount of validated “best practices” exist when it comes to succession planning for family businesses. However, many of the conventional and tried-and-true approaches can be ineffectual or of limited applicability because of the magnitude and financial complexity of a billionaire's family business. These best practices need to be combined with insights and the appropriate methodologies for dealing with the probable conflicts that often arise within many super-rich families.
“The ability to mitigate if not eliminate taxes when transitioning family businesses is certainly a possibility, even when the businesses are worth billions," said Peter Sasaki, managing member of SDS Family Office. "Getting this kind of result requires a well-coordinated team of exceptional professionals. The real problems tend to arise with interpersonal issues, not with the technical aspects. Being highly attentive to what’s referred to as the human element is essential in making the succession planning of billionaire family businesses succeed.”
This point is critical. Most professionals, such as wealth managers, lawyers, and accountants, approach succession planning by concentrating on the technical considerations, such as minimizing taxes. While taxes and other technical considerations are certainly very important, it is the family interactions and alignments that will determine if the transition has a good chance of being successful. “Not making sure all the advisors engaged are attentive to the psychologies of key family members is sure to result in disaster or at the very least serious complications,” said Sasaki.
In the near future, a growing number of billionaire family businesses are going to need to address the question of succession. By leveraging their economic positions, using high-caliber expertise, and adopting a holistic approach with the human element being foundational, the founders of these companies can ensure their heirs receive the maximum benefits from their business and wealth creation efforts.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.
