Valuable information sometimes comes in small packages. And so it is with a recent study that caught my attention about a small section of American business families. While not geographically diverse, the study offers yet another glimpse into the many contradictions and complexities of family owned businesses. This study was conducted by the Seidman College of Business at Grand Valley State University and Western Michigan University, both in Michigan. What makes the survey so interesting is its very regional nature of focusing on counties in West Michigan. 690 family businesses were sent surveys and 156 responded.
Just some facts: The family enterprises that participated were quite diverse ranging in age from 1 year to 155 years old. 11% were over the age of 100 years. Diversity in core business also ruled with 38% of the respondent families working in manufacturing and 20% were in retail, just to name a few industries. 68% of products and/or services were delivered within the State of Michigan and approximately 30% outside the state. Annual revenues ranged from $100,000-$499,000 (17%) to some families reporting revenues within the range of $50,000,00 to over $1B.
What is fascinating about this study is that 80% of respondents unequivocally stated that their intention was to hand down the business within the family. That is the good news-if you are a child or an heir of one of these families who might happen to have the passion and interest in being part of the family business.
Unfortunately, the bad news can be found in the across the board lack of governance and legacy planning. Here are some of the grim statistics reported by these families:
- Only 15% have some type of advisory board to help navigate the direction of the business.
- Only 13% have some type of fiduciary board with independent (non-family) members who do not work within the family enterprise.
- Only 8% of families studied have a family constitution, and
- Only 6% of these families have some type of prenuptial policy in place for the children before they enter the family business.
- 52% of the families reported having no procedures in place to address family member conflicts when they arise.
And here is the real Achilles heel for these families- a statistic that portends ominous outcomes – 81% have no formal, written succession plan in place! Wishful hoping seems to rule. My hunch is that these statistics are not unique to Western Michigan.
In sum it seems that many of the best practices so frequently studied and written about by myself and others (See my “Rethinking Estate Planning” article, Fall 2013) to aid business families through the tumultuous waters of transferring a family enterprise to the next generation are in fact absent from this particular study.
Of course, the bad news is dependent on which lens you are looking through. One might argue that for us service providers – those lawyers and other family business advisors – the opportunities are indeed rich to service these families-predicated of course of delivering valued services to them.
Unfortunately, the study is silent as to why so few of these families have failed to integrate such critical family planning tools. Are they unaware of the importance of these issues? Are their professionals not focused enough or competent in these areas of work to guide them through their discussions and decision making processes? Are the professionals that service these families themselves far too compartmentalized to tackle the broad and diverse issues facing these families in transition? Or, are there emotional and family dynamics going on within these family systems that inhibit them from reaching out and asking for advice? We simply don’t know.
This author’s hunch is that there are many reasons why these issues often don’t get addressed until it is too late- until some epic event hits the family and family comprehensive planning becomes all but impossible.
The bottom line is that family business succession planning is a highly emotional process for the founders to wade through. It touches on deeply rooted family issues, requires a collaborative team of legal and other advisors, takes a significant investment of time and, and most importantly requires a bit of vision.
There are no shortcuts.