Navigating the emotional side of succession planning

Natalie and Russ discuss the emotional and more personal side of succession planning – preparing the family. Russ explains how to break down emotional barriers so families can prepare themselves for the next stage of the business and next stage of life.

Show Notes

In our 2nd episode, Natalie is joined by Russ Haworth, a Family Business Consultant and founder of the Family Business Partnership. Russ is also the host of the widely acclaimed Family Business podcast, which he launched in 2017

Succession is inevitable, but the success of the plan and ultimately the business hinders on the communication and honesty of all members of the family system. By creating a safe environment for both open discussions and (positive) conflict, Russ explains how he challenges thinking and beliefs so that families can design a succession plan that suits their long-term needs.

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Transcript

Natalie Wright: You are listening to the Exploring Family Business podcast, brought to you by Mazars. I'm your host, Natalie Wright, Head of Family Business Mazars UK. And having worked extensively with family businesses for a number of years, I'm keen to support this valuable sector of our society. At Mazars, we believe there is nothing more personal than a family business. Every family and every business are unique so we look forward to sharing knowledge, insights, and practical tips for those navigating the unique issues that arise from being in business with family. Now on with this weeks show.

Natalie Wright: Hello and welcome to the second episode of the Exploring Family Business podcast. This week, I'm joined by Russ Howorth, a family business consultant and founder of the Family Business Partnership. Russ is also the host of the widely acclaimed Family Business Podcast, which he launched in 2017. Russ, welcome to the show. Do you want to tell everyone a bit about you, your business, and how you support families who are in business together.

Russ Haworth: Sure. So as you say, I'm a family business advisor. So what I do is I work specifically with families who own enterprises or businesses together and help them to navigate the complexity that additional family dynamics can bring with it. But my background is actually broadly similar to where you are in financial planning. I started my career as a financial planner, working predominantly with family-owned businesses, and just got more and more intrigued and fascinated by the presence of this family dynamic and how there seem to be some misunderstandings around it and some taboos around it and things like that, and sort of dived into the world of family business academia, and studied it for a few years and now have moved away from the financial planning side onto what I'm doing now, which is the consultancy work.

Natalie Wright: Am I right in thinking your business was launched last year, just pre-pandemic?

Russ Haworth: Yeah, on the 1st of April as well. And looking back, you could look at it as an April fools kind of thing. But yes, in my business plan, I didn't have a global pandemic. And because I had a notice period with my previous employer, I resigned from my role at a time where the pandemic wasn't quite as present as it was on the 1st of April. So it's been an interesting start to self-employment.

Natalie Wright: I think interesting seems to be the topical word at the moment. But have there been any particular, I guess, benefits for you in terms of how you can work now? Maybe the families that you come work with are probably broader spread I imagine?

Russ Haworth: Yeah. So I think the fact that we've all had to embrace technology and use things like Zoom and Microsoft Teams and other kinds of digital technologies that allow us to meet with people without having to be physically there. What I do is inherently sort of emotion-based. So it's difficult to build that rapport. And if you have a choice, it's often better to do it face-to-face, but when that choice was removed, it meant that organizations that were looking for my kind of services we're able to look everywhere because even if they were dealing with somebody five miles down the road, they were still having to do things via Zoom and via technology. So it certainly broadens the sort of geographical spread of the businesses that I've been speaking to over the last 12 or 14 months.

Natalie Wright: Yeah. I can concur with that. How we're working as well, it's again, kind of from the financial planning aspect that you pick up a lot of similarities that being in the room with someone you pick up on maybe what's not being said or kind of body language with people that isn't always easy when it's kind of one dimensional on a screen. But then I guess keeping in touch with people is quite nice in this format as well, rather than just being on the phone and not seeing someone. For anyone who's not worked with a family business consultant before, or doesn't know the difference, can you just explain a bit more about how you work with families in your role as opposed to, say a generalized business consultant?

Russ Haworth: It's often a difficult role to explain because when people hear that I'm a family business consultant, they kind of hear the business consultant bit. Whereas the keyword in this is the presence of the word family, both in terms of the business itself, but also in terms of my role within that organization. So I specifically work with the family system, which is typically those that will own the business and probably their spouses and siblings and children and parents, whatever the sort of dynamic is within that particular organization. And whilst what I do has an impact on the business, I don't go in and talk about things that a business consultant would talk about, kind of focusing on policies and processes within the business. I focus on the policies and processes within the family to make them more effective owners of that organization.

Russ Haworth:In addition, I help to deliver clarity to families as to why they own the family business or why they're working in the family business. And it might seem a really obvious thing to deal with, but sometimes that question just hasn't been asked, what are we doing this for? What is the purpose of our business? What impact do we want to have as a family, as a business, and as individuals? And then I work also with individuals to help them gain clarity on what it is that they want out of life and how the family business can play a role in that. Be that as an owner, be that as somebody working within the business or if the right thing to do is to say, "Actually I want to pursue a career elsewhere doing something that I really love doing." How can the family business help enable that for that individual?

Natalie Wright: It's really interesting to pick up on all those different layers actually of what you've said there in stripping out the business side of it might be dealt with either with a consultant, your accountants, whoever it is, but you need someone to have that added layer of the personal aspect as well.

Russ Haworth: Yeah. And one of the big distinctions as well as who my client is. So although the business would generally pay my fees, my client is the family system, not the business. So what that means is I'm outcome agnostic. So I'm not there to make sure that the business survives no matter what the costs to the individuals, I'm here to help the individual understand what it is that they want out of owning that asset, that business, and whether that means ownership, whether that means working in it, or whether that just means being on the periphery and having the private and emotional attachment that comes with being involved in a family business.

Natalie Wright: Clearly, there are lots of aspects to what you do. And I guess to a large extent, that actual service will depend on the family, the business. It's like [inaudible 00:06:59]. But as you know, we are focusing this season specifically on succession planning, which in itself is a huge topic and I know we could be talking about it for days. But I think it's fair to say, there are still many instances where we do see succession planning as almost been entirely focused on that kind of financial legal solution side of it, without thinking about the personal and emotional aspect. So I did really want us to delve more into that side of the process today.

Natalie Wright: Let's start with some basics because we see these numbers thrown around all the time about how many family businesses don't have a succession plan, how many don't make it to the second or third generation. And I think in itself, that's got some other questions around it. But as a starting point then, when you go to work with a family who've never really delved into succession planning before and had the conversation, what's your starting point of working with them?

Russ Hawort: The starting point for me is to find out ideally what everybody wants. And again, it starts off with a pretty basic question of, "Do you want the business to continue?" And if there's a consensus around, "Yes we do, but we might lack clarity on what that means," whether it means somebody else coming in to help run it if there's not anybody in the next generation that wants to run it. If the answer is no, what's the best outcome in terms of selling the business or passing the business over to a management team, that kind of thing. But when it comes to succession, particularly with founders, it's a foreign concept because their identity, their purpose, the sense of wellbeing they get from that role is everything to them. Being asked to give that up is really, really difficult. And it's a very challenging subject. And quite often, again, I'm interested to see if you see this with the financial planning helm, but there can be this, "Oh, I can't afford to leave the business." And then as a financial planner, you go, "Well, actually you probably can."

Russ Haworth: There's then this other thing, oh, okay. It's not that. That's not what the issue is. It's what am I going to do with my day? How am I going to get that element of wellbeing from my life that's currently delivered by the business? And it's really hard to talk about because you kind of have to open up and admit that you're feeling fear, you're feeling concerned and anxiety around this kind of thing. And if you're the leader of the business and head of the family, if you like, that can be a difficult thing to talk about. So I try and create an environment where people feel comfortable answering difficult questions. And then I ask those difficult questions in a very caring and sensitive way because I'm aware of the emotional aspects of that are happening here. And that really helps. Because I'm objective, I'm an outsider. I'm somebody who there's zero judgment in anything that's said to me from people. It helps to get some of the elephants in the room out onto the table.

Natalie Wright: Clearly, in everything that you've said there, there's huge, huge emotion driven into every kind of layer of it. And I guess one thing that I've come across in the past as well when talking with a lot of family businesses, and each generation is different, but let's say you've got current generation not sure how to broach the subject with next generation because they don't want to force them down that path. Or you've got the other side of it, next-generation actually wants to step in and start leading, but doesn't know how to broach it with the current generation to not step on toes let's say. In either scenario, it might be a case of how do we actually get the conversation going? What's the first thing to do? Would you have any advice on that to kind of break down that maybe emotional barrier of just starting the conversation?

Russ Haworth: Yeah. There's a couple of things that I suggest to families that they try and again, different things work for different families. So there's no kind of one size fits all with it. But the first one is to try and change the language around succession planning. It is called succession planning. It's called succession planning everywhere. But in essence, we're looking at the continuity of that business. Unless it's to be sold, in which case that's a different conversation. But if the business is there to continue, we're looking at continuity planning. And so by looking at continuity planning, we're stretching out the timeframe beyond the sort of red circle around the date in the calendar where somebody is looking to move on from their individual role. So changing the language to continuity planning means that somebody can go "Well, what's our continuity plan with our business?" And we've all faced the last 12 or 14 months with a threat that we hadn't probably considered very much before it arrived.

Russ Haworth: So actually it's a very good time to look at our continuity planning anyway and go, "Well, what went well over the last 12 to 14 months? What didn't go so well? What would happen if something like this came along again? What are other scenarios that we can look at that mean it would have an impact on ownership, on power, on control?" For example, if there's only one person that can sign the checks, then that's a threat from a continuity perspective. But if that's symptomatic of the fact that there's this sort of power control in one individual, then that can start to highlight those issues and open the door for that conversation.

Russ Haworth: Secondly, one of the other exercises that I suggest is I call it a lifeboat drill, but it's effectively scenario planning. What would happen if this person were unable to fulfill their roles? Who can step into that? What would happen if somebody in the ownership system were to pass away? What would happen to their shares? Follow that route of where those shares go. Is that what we want? Do we want somebody who perhaps doesn't know an awful lot about the management function of the business, all of a sudden having a hundred percent of the control? So looking at those different scenarios and the lifeboat drills of what happens in these various disaster scenarios can again highlight some of the areas that might need focus, but without it being directed as right, come on senior generation, get out of the way or come on next-gen, step up.

Natalie Wright: I've read your lifeboat drill article actually. So I'll pop a link to that in the show notes. It would be useful to share that. And coming back to a point that you mentioned around kind of personal motivations as well, and really understanding what each individual does want to do, not just now, but going forward. I do think that can often be overlooked, especially if you are focusing on the succession on the financial, the legal aspect. So if you're working more, let's say on planning for an exit in a generation, that element of loss, and I guess almost grief to an extent, how do you deal with that? I imagine that gets into some really personal discussions at times?

Russ Haworth: Yeah, it does. And without being stereotypical, it tends to be with men of a certain generation where conversations about this kind of stuff is not necessarily what they're used to. And so the first element in that is that it's okay to talk about this stuff. It's okay to feel the way that you're feeling about the business because it's such an important part of your life. It is your life if you like. So it's okay to be afraid of what's going to come next.

Russ Haworth: Again, one of the things I suggest as a way of looking at it is to take some time. So this is for the senior generation who are perhaps looking at passing on their management or ownership role within the business, is what elements of wellbeing do I derive from my work? And it can be, again, a difficult conversation or a difficult thought process because you might not think about it on a day-to-day basis of, I'm getting this element and that element and ticking off the list every day.

Russ Haworth: But if it's about control and influence, or if it's about having some power or if it's about having some ability to give back to the local community, whatever it is that drives you within that business, are there ways in which you can replicate that outside of the business, but also combine it with the things that you might have gone into business to do in the first place, which is to enjoy a particular type of lifestyle or to have the holidays that you sort of dreamed of as you were setting the business up? And if you can replace those elements of wellbeing, it makes it slightly easier, only slightly easier, to kind of give those up and accept the fact that your time is up with that particular role within the business.

Russ Haworth: The other element on that as well, and we talk about legacy an awful lot when it comes to family businesses and having a positive legacy. My view is legacy is decided after you've passed away. What actually we can have far more control over is our impact. And having a positive impact on the next generation by setting the example of this is how we can do this, that creates your legacy when the time comes for that to happen. The stark reality of succession planning is it will happen at some stage. None of us are immortal, despite what we may think. And so if again, somebody is thinking, well, if I start talking about succession planning, I start to lose some of the control around what's going on with the business, that will happen the day after you die. There can be all sorts of unintended consequences that occur as a result of that without the effective planning. So planning creates control over something that's going to change anyway, which again, can be a different way to frame it.

Natalie Wright: I've not heard of the legacy side of it kind of pitched like that before. I really like that. It's interesting thinking more about your impact and actually legacy comes later. I like that. You alluded to it before as well about these taboo subjects. Money's always a taboo subject. Family, and in business as well. It's all these layers, isn't it? So communication absolutely has got to be key to making sure that this is successful. But I imagine it's also the biggest stumbling block at times. So how do you facilitate those discussions with a family? Is it done Kind of altogether, individually, a combination, and how do you give them almost permission, I guess, and space to air their feelings openly and without judgment?

Russ Haworth: So when I work with a family, as I said at the outset, that my client is the family system, if you like. And system's kind of a horrible word because it sterilizes the fact that it's all these different individuals that are involved in it. But the important element is that every voice is important in that family. Everybody's going to have a viewpoint, whether they're working in the business or whether they own the business. So spouses of those that work in the business will have a very strong opinion and strong influence as to what's going on within that business. And so hearing and understanding their concerns and their fears. Again, very often if there's the individual that is the leader of that business, their spouse is their most trusted counsel, their most trusted advisor, if you like. And so going into that relationship and ignoring that person's view can be very costly because it can lead to, if somebody's not willing to tell actually what's really going on, you don't get the whole of that picture.

Russ Haworth: So when I work with a family, I interview everybody within that family system. That's akin to putting a jigsaw puzzle together. I'm trying to get the viewpoints of everybody that's involved in whatever the transition might be. Or if there's a little bit of conflict, understanding what that is being driven by. I put that jigsaw puzzle together, and then I hold a mirror up to the client and go, "This is what I see as is going on." Because I'm an objective third party, I've got no kind of hidden agenda in terms of a particular outcome. The business doesn't have to survive. The family doesn't have to own it. There's none of this kind of conflict going on there. And so I can hold up the mirror and go, "This is what I see is going on. What do you guys think?" So I start with them as individuals, then work with them as a family to help them to overcome whatever challenges it is that they're facing at that particular time. And the transition is a big one.

Natalie Wright: I guess it's great if everybody in the family gets on and they all agree, fantastic. We all agree to everything altogether at the same time. But let's flip it to the other side, and this is bound to happen, disputes and conflict and how you deal with those. Because you're bound to have different individuals having different aspirations, ideas. Not just on what might happen with the succession now, but maybe longer term as well. So how do you help to manage that over-spill so that it doesn't go into the personal life and possibly into the extended family of the employees and wider stakeholders?

Russ Haworth: Starting off, there are some positive elements to conflict. And again, that might sound counter-intuitive, but if there is healthy conflict and healthy dialogue that doesn't start getting too personal, it can help challenge everybody's perceptions. And that again is something that if everyone's grown up in the same household in the same kind of environment, their views can be broadly similar. But if you're able to challenge each other on certain things, certain aspects about where the business is going, what the rule should be around who joins the business, that kind of stuff, that's actually healthy debate and should be encouraged.

Russ Haworth: Where it starts to become troublesome is if it gets into the kind of personal element. And we know that that can happen very often in family situations because you have grown up with these people or they are your parents or children. A prime example is two siblings who might've had an argument over their favorite toy aged seven and eight. And that now has spilled over into, "I'm not letting that person be my boss, because they stole my favorite toy at age eight." And so part of my role is understanding where the conflict lies. Is it a task conflict, i.e, what you're doing? Is it a process conflict, i.e, how you're going to do that? Or is it a personal conflict? You can't get on with that person. And then breaking that down and dealing with it in whatever way is needed to help overcome that. If it's task and process, there are ways in which you can say, "Well okay, what happens if we do this? And what's the best outcome?" Again, back to that clarity point, "What gets us closer to what we're trying to achieve as a family?"

Russ Haworth: If it's a personal conflict where there are, I don't know, siblings that aren't getting on, or parents that aren't getting on with their children, then that takes more time. And again, creating that environment where people can share what they're feeling. It's often easier to talk about this stuff when there is somebody else in the room because I can kind of diffuse the finger-pointing and the table-thumping and that side of it. That's one of the more interesting elements of what I do.

Natalie Wright: The man in the middle. They're interesting points actually, because Alan Frost, who I interviewed last week, he was discussing with me how you decide who's best placed to lead, manage and own the business and accepting that those three aren't necessarily all going to happen at the same time. Could be separated out. So, from a business advisory perspective, we can always help with things like skills assessments, behavioral testing, all the things that you would go through, I guess, in a non-family-owned business. But what process do you tend to go through with the family and the individuals when it comes to looking at who might be best placed to move the business forward in those, I'm thinking more kind of the leadership roles in particular?

Russ Haworth: Yeah. And I think you've touched on a really important point there is separating out the different elements when it comes to succession planning. It is a big task and I'm going to cross my metaphors here slightly in that it can often be the elephant in the room, but there is a saying that says, "You can only eat an elephant one bite at a time." So having this big thing and this big task to get done that's branded as succession planning, one of the ways to eat that particular elephant is to break it down into what's the ownership succession plan? What's the management succession plan? And what's the leadership succession plan? How do we deal with each of those as a family? How do we deal with each of those as a business? And separating again, the family element and the business element, is generally a good idea, that it's enmeshed. So it's impossible to say, well, if we ignore the family element and deal with the business or ignore the business and deal with the family because they are enmeshed. But separating out helps.

Russ Haworth: So again, we hear stereotypically that the next generation may be the clearest candidate for stepping into that senior management role. They may not be the best candidate in the market. The likelihood of them being the best candidate in the market's pretty slim if you look at the world's population and the skills required for that job, but that doesn't mean they shouldn't be that person. My personal view is if it is what the next generation wants, it's what's going to work for them as an individual and for the family overall and the business, let's make that as easy as possible. So if we can be honest about any skills gaps, if we can be honest about any feelings around, you're only here because of your surname, how do we address that? Being open and putting these things on the table and then helping deal with it means that you're not again storing up problems for later on.

Russ Haworth: If there are people in the business that are thinking, you're only here because of your surname or your bloodline or whatever the scenario is, the likelihood is the individual stepping into that role is going to be aware of that. And that's a horrible pressure for them to have to feel going into something that should be a really exciting role for them. So being honest about it and putting it on the table, going, okay, if that exists, what can we do to tackle that? Do we need to bring in mentors? Do we need to go on a leadership training course, an IOD course? Whatever the solution is, there's plenty of options available to people, but not acknowledging it as an option and not acknowledging it as a potential issue can lead to...

Russ Haworth: I've done an episode of my show recently on mental health issues and mental health awareness and the prevalence of mental health issues within family businesses is very high because of these pressures that come from the presence of a family dynamic. And the more we can do to address those before it becomes a challenge I think is the right thing to do.

Natalie Wright: I saw you posted that actually online the other day. So I'll leave a link to that in the show notes as well. We talk about the process of succession planning so it's not a one-off project, it's not to document you write down and puts in a drawer, let's say. How do you make sure that it stays on the agenda for the family and the business and keep that conversation going? So you've worked with them at outset let's say, you've set this framework for succession. How do you work with them on an ongoing basis from there? Or do you need to?

Russ Haworth: Part of what I do is helping to introduce or refine how families communicate with each other around most things. So separating out what hat you're wearing at different conversations can be, again, a tricky part of working with family, because it's natural to have conversations over the dinner table or when you're in a social gathering together. And things like that, separating out what hat you're wearing during those times can be beneficial to the business and the family as well. And part of that is to perhaps have a family council or an owner's council of those that own shares in the business and have regular board meetings for those that are operating the business. And they might not necessarily be the same people. And just making it a habit to talk about these things in whatever forum is necessary in order to be effective. So if it's about management succession and there's a role within the business, then the board needs to be looking at that on an ongoing basis.

Russ Haworth: If it's about ownership and there's an ownership council, bring it up once a year at this ownership meeting and say, "What are we doing about succession?" Again, it very much is a process. It's not a one-off. It's not something where you go, "Here it is, let's go." There's lots of technical and legal aspects that need to be dealt with, which I know you're covering in future shows as well. But having those conversations about what's probably going to be the roadblock, which is the emotional side of it first, and then continuing that conversation is likely to have a positive outcome for the other stuff that needs to go around it, the technical stuff, the financial stuff. Because again, you've got that clarity as a family. This is what we want to happen, what's the best way for that to happen? It makes your advisor's lives a lot easier.

Russ Haworth: They're not coming to you with a sort of array of options to go, "Well this had really good tax advantages, but this does this, and this does that." It's more about this, this is the best way to achieve what you want to achieve. So having those conversations and doing it on a regular basis should have positive outcomes. If it turns into a conflict and difficult conversations, bringing in a facilitator to help with those can help as well. It's not always needed, but it's something. So I work with families on an ongoing basis if they need somebody to kind of sit on that owner's council of the family meetings to help people stop shouting at each other.

Natalie Wright: I guess it's creating that accountability as well, isn't it? So if you've got someone there almost who is that third party, some accountability to say, "We need to keep reviewing this. We need to keep the discussion open."

Russ Haworth: Yeah, absolutely.

Natalie Wright: And finally, we want our listeners to be able to take away something from today that can be actionable. So covering two points. I won't make this too open because I appreciate there's lots of things that we could cover, but if there's one thing that you see families overlooking when it comes to succession planning which can potentially have the most pain, is there one thing that you would say, this needs to be pinned down?

Russ Haworth: Yeah. And to your point, it's a massive kind of area. So we can't delve into it too much, but communication, being open and honest about this stuff. The reality is, succession will happen at some point. You can either do it with a warm heart or a cold hand. And understanding that difference and then communicating about it should make things far easier. But communication is tough even with the people that we love the most because it can mean being vulnerable. It can mean admitting that we're worried about it. But communication is absolutely key around it. Because again, looking at non-family employees of the business, the security that they get from understanding that actually if something that goes wrong, there is a plan in place. There is something that happens or there is something beyond when the managing director decides to retire that can really help. So it's a big topic, but it's communication.

Natalie Wright: And secondly, if you could give one piece of advice for preparing the next generation, what would that be?

Russ Haworth: Again, for me, it would be, be really clear on what it is that you want to achieve in life. Don't be defined by the family business. If what you want to do sits within that, brilliant, then let's make that easiest thing for you to be able to do. If not, then be honest about it, communicate about it. And then you can do something about it rather than feeling trapped in something you're not looking to do.

Natalie Wright: Thank you for those and I put you on the spot a bit there. Thank you so much for joining us today Russ, it's been a really, really valuable, and really interesting session, focusing more on that family and personal aspect. And we know that family and personal relationships are intrinsic to a family business, but it can be a very taboo subject. So thanks for opening that up and sharing your insight.

Russ Haworth: Absolute pleasure.

Natalie Wright: I'll leave Russ' details in the show notes, along with the articles that we mentioned, and if you haven't listened to the Family Business Podcast, I'd highly recommend checking it out. And that brings the second episode of the Mazars Exploring Family Business podcast to a close. If you enjoyed today's show, please subscribe to the series and leave a review on iTunes. It will help us to extend our reach to the family business community. Join me next week when I'll be speaking with Andrea Jones, a partner in the private business wealth team at Irwin Mitchell. Andrea will be explaining how and why you need to protect both the family and the business. And she'll also be explaining some of the common disputes that can occur when it comes to unplanned succession. I look forward to sharing more with you then, but for now, thank you for listening.

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