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The Partnership charter

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Family Matters: Succession of Family Business

Vive Magazine

by Judy Martel
November/December 2004

Eventually, Jack Link will be face-to-face with a difficult choice. The founder and CEO of Link Snacks, a fast-growing Midwest company of packaged meat snacks, is riding the wave of a family business success. Since his two sons joined him in earnest in the early 90s, his business has grown 12-fold. Both sons, now 32 and 34, have had integral roles in expanding and running the business. But the day will come when one will be appointed to lead the companies, and the choice of that leader will be Jack’s alone.

By Jack’s description, both sons are “natural leaders and extroverts.” For now they are leading as a team of three, with one son, Troy, as President, and the other son, Jay, as Chief Operating Officer.

Business succession planning in any enterprise is a necessity, but in a family-run company, the intricacies of personal relationships makes for an extra measure of complexity. The most-often cited statistic by business consultants is that 70 percent of family businesses fail to transfer to the second generation, and that percentage increases dramatically with each succeeding generation. With some 80 percent of businesses in North America classified as family businesses, that statistic is troubling to families seeking to pass on the company they have spent a life building.

Whether it’s a fortune 500 family-controlled business like Wal-Mart or mom-and-pop boutiques, families who don’t plan to eventually sell the business have to work through succession decisions. Many don’t have any idea how to plan so that both the family and the business stay intact.

Lee Hausner, Ph.D., psychologist and partner of IFF Advisors, calls family business succession “an endangered species.” In many cases, the root of destruction is sibling rivalry, with “everyone trying to be mom or dad.” If siblings can’t learn collaboration, the business is doomed. In families like the Links—who she counsels—the second generation has had practice in collaboration and can divide areas of business leadership and responsibility. She advises families to instill collaboration early by teaching children to work together through support for charitable causes or by bringing them in on family business decisions as soon as they are ready. Indeed, Jack started working the boys in the company when they were 10.

By age 15 or 16, they were out on the road selling beef jerky. “I paid them,” Jack says. “When wages were $5, I paid them $7 or $8.” His father saw the work ethic in his grandsons and tried to woo them to his own business, but Jack outmaneuvered him. “I trumped him by upping their pay.” Jack also gave the boys some ownership responsibility at an early age. “I saw a big difference when they owned something,” he says. “They owned and raised heifers, and theirs were always a little better cared for than Dad’s.”

Troy says now that his father enlightened him on the opportunities in commerce early on, and it meant that he and his brother saw no reason not to continue in the family business after college. “We were a small company at that time, and growing. We had a good product, and everyone could see that.”

The Links have been working as a threesome to lead their company for the past decade, each with a defined role. Troy Link says a strong family relationship rooted in their shared success has provided the foundation for their working rapport. “We have a very close family, and that’s important if you’re going to do business together.” During the inevitable clashes, they try to keep it strictly business. “You need to stick to the facts and take the emotion out,” he says.

Psychologist and mediator David Gage, Ph.D., co-founder of BMC Associates, says that a drawback to transferring a business to the next generation is that most founders don’t understand that the challenge is to create partnership in the next generation. This is a critical point for success. Usually, “founders don’t have to mess with partners, they just run the business,” he says. “They don’t know anything about being partners.”

Since the next generation will become a team of partners, he recommends that they develop a partnership charter that defines roles, responsibilities, and how they will make decisions. Complications arise if some siblings in the next generation want to run the business and others want to act like silent investors but be a voting board member. For the business to succeed in this generation, Gage says, parents must step back and let the siblings figure out the plan for their own partnership.

Parents aren’t entirely removed from the process, however. Once the charter is completed, they can have veto power and decide not to pass the business on, Gage says. “This is very different from the parents deciding what will work and foisting it upon them,” he says. “If the founders try to dictate what the second generation partnership will look like, it won’t work.”

He believes founders can stay in the business, but once the next generation reaches their 30s and 40s, they have to begin to decide what their partnership will look like when the founder retires or dies. He recommends scenario planning as one facet of the planning process. “Working in business with siblings and parents is very different than working in business without parents.”

For his part, Troy Link says it’s only right that the decision for successor rest on his father’s shoulders, since he is majority owner. If his brother is named leader, Troy says he will stay with the company. “It would be a major loss if I left, or my brother left,” he says. “Both of us want to run it, and I think both are capable, and understand all aspects of the company.”

Jack Link has given his sons no timeline for when he might leave the business. He says he doesn’t plan to retire anytime soon, but when he does, his sons are his succession plan.

In the meantime, Troy predicts further success “We’ve got a family that’s very driven with an excellent work ethic,” he says. “Our business relationship, our family relationship, and our personal relationship is very good. I’ve seen a lot of other family businesses, and I’ve watched them fall apart.”

Judy Martel is a Certified Financial Planner and a Vice President at Asset Management Advisors, a multi-family office with locations in Palm Beach, Orlando, Miami, Atlanta, Washington, D.C, Greenwich, CT., and Charlotte, N.C.