5 minute read 18 Jun 2020
Without a plan for tomorrow, what are you basing your decisions on today?

Without a plan for tomorrow, what are you basing your decisions on today?

Authors

Eirik Moe

Nordic Family Enterprise leader and Marine and Aquaculture Sector Leader

Partner with broad experience from the professional services and corporate advisory industry. Dedicated to skiing and arctic cod fishing during winter and boating in summer.

Niclas Nikander

EY Nordic Family Enterprise Business Development Leader

Develops client centric solutions. Passionate about family governance and next generation education. Loves data and insights. Avid runner, cyclist and photographer. Father of two.

5 minute read 18 Jun 2020
Related topics Family enterprise Growth

With the world fighting against COVID-19, family enterprises may now be facing their greatest challenge for generations. 

Family enterprise owners face unique challenges as they seek sustainable growth in business, longevity in wealth and preservation of the entrepreneurial spirit across generations. Now more than ever, it is vital that business families engage in active ownership, united in their actions today and prepared for what can happen tomorrow.

In order to achieve this, we believe business families should put the following areas on their agenda: 

Family Governance: managing today, preparing for tomorrow

The purpose of family governance is to form the structures and processes for accountability as well as decision-making among owners towards the business. The core of family governance is in a written family constitution (family charter or agreement) that defines the values and purpose of the family for owning a business together. This is the glue that creates cohesion among owners, uniting generations.

Now more than ever, it is vital that business families engage in active ownership, united in their actions today and prepared for what can happen tomorrow.
Eirik Moe
Nordic Family Enterprise leader and Marine and Aquaculture Sector Leader

To align expectations of the owners the constitution should also include guidelines on, e.g., code of conduct, decision-making, ownership, succession, employment, education and communication. Having guidelines enables the family to be prepared for different situations before they emerge. This eliminates confusion around actions to be taken and mitigates possible conflicts among family members. Meanwhile, the guidelines build trust and assure company leadership that the family has a structured long-term plan for their ownership.

Succession: Next gen taking the lead

Succession-related issues are a significant contributor to why family businesses fail. Often there is a plan for succession, but not an actual succession plan, which is likely to create ambiguity among successors. Additionally, when the time for a generational shift arrives the successors are not prepared. There can simply be too many questions to settle, which can lead to disagreements and conflicts ­­– even ending up hurting the business. Hence, a well drafted succession plan needs to be a part of the family constitution.

The process leading to a plan must be inclusive in order to gain the support of the controlling generation and the next generation. And both parties need enough time to guarantee a smooth and successful transition. There are many technical questions, such as share valuation and taxation, that need to be considered.

Succession-related issues are a significant contributor to why family businesses fail. Often there is a plan for succession, but not an actual succession plan, which is likely to create ambiguity among successors.

For the controlling generation the largest challenge of them all may become the emotional aspect of handing over the control. Meanwhile, for the next generation the question is: will they have the same commitment and will as well as necessary skill? To prepare the successors, their involvement in the business may need to be gradually increased to build understanding of the business and a sense of stewardship. Not to forget relevant education and training into becoming an active owner or taking on an operational role, or both.

An opportunity to decline and pursue other career paths will also need to be considered. The world is full of opportunities and it does not serve the family nor their business to have an unmotivated owner in the lead.

 

Family office: centralizing management of family matters

Many families have an informal structure that exist within the business, i.e., an embedded family office, engaged in managing the family’s assets and other matters. The tasks are often assigned to trusted and loyal employees, such as the CFO and their department. The arrangement can be beneficial until the family’s wealth increases, and business needs get more complex, requiring a more efficient structure.

There are many triggers that drive the creation of a dedicated legal entity that serves the family. It releases business assets from handling family matters and separates the family’s wealth from the business wealth. In addition, it enables the family to centralize and professionalize the management of family wealth, tax and legal matters, record keeping, global compliance, philanthropy and many other services. Among the benefits are also increased privacy and confidentiality, as the family office becomes the sole entity keeping records and documentation about the family members.

The family office setup that works for one family is not a template to copy to another. All families are unique and so are also the family constitutions, succession plans and family office structures they need. A holistic view needs to be taken in order to establish the optimal solution.

Let us explore these topics together

We strongly encourage that your family considers these topics to safeguard your legacy as well as your cross-generational growth of wealth and success in business. Utilizing an external advisor to facilitate and guide in these matters is vital for objectivity, subject matter expertise and achieving the best possible outcome.

As trusted advisors to enterprise-owning families in the Nordics and around the world, we have the experience, expertise and programs to support your family on its journey. Let us explore these topics together and unlock the development potential of your family and your future.

Summary

Family enterprise owners face unique challenges as they progress on their cross-generational journey. To mitigate the possible challenges ahead, business owning families should reflect on their practices related to family governance, succession and family office. These three areas are key in enabling the family, their wealth and the business to flourish for generations. 

About this article

Authors

Eirik Moe

Nordic Family Enterprise leader and Marine and Aquaculture Sector Leader

Partner with broad experience from the professional services and corporate advisory industry. Dedicated to skiing and arctic cod fishing during winter and boating in summer.

Niclas Nikander

EY Nordic Family Enterprise Business Development Leader

Develops client centric solutions. Passionate about family governance and next generation education. Loves data and insights. Avid runner, cyclist and photographer. Father of two.

Related topics Family enterprise Growth