Family Businesses - Making the most of change

There are certain key milestones in the evolution of a family business and this article focuses on when the baton is passed from one generation to the next. Many employees, particularly those long-standing employees will have strong relationships with the previous leadership team. They may have known the new leaders as young children and might struggle to accept them as their new management team. Here are some of the issues that you need to consider before the next generation takes the reins to ensure the business makes the most of any change.

1. Succession Planning

Most successful family businesses will rely on key non-family members. It is crucial to involve them in discussions relating to the future of the business because the incoming generation will require those individuals and the knowledge they have. This could be a good opportunity to review contracts of employment of that senior team. Longer notice periods, more robust confidentiality clauses, and tighter post-termination restrictions might be appropriate for those essential members of the management team. Whilst a contract is a poor substitute for properly engaging with these key employees, it does offer some protection for the incoming generation. It is most effective when you have that open and honest dialogue and clear setting of expectations, together with a properly drafted employment contract.

2. Restructure

Any time of transition within a family business should represent an opportunity not just to carry on exactly what the previous generation has done, but to make sure that the business is in the best shape possible to take on the next challenges. This should not be seen as making change simply to ‘stamp your authority’ on the business, but as any business evolves it is important at certain key points to look critically at the structure of the business. A change in the generation is an ideal chance to sit down and analyse strategically the current structure and people in those roles, as against what structure you think is necessary as you move forward. If there are to be any changes in structure, it is important to ensure a fair process is followed and decisions taken based upon objective criteria, rather than simply getting rid of the older members of staff.

3. Retirement

Change in ownership might be a useful time to review employee retirement plans. The employees play such an important part in the success of any business, but the departure of the previous management team might get people considering their retirement. Since the removal of a statutory retirement age, there is a feeling amongst employers that they are not then allowed to raise the issue with the older members of staff. Having an awareness of each employee’s plans for retirement is a sensible and necessary step in succession planning for any business. Rather than shying away from what might feel like an awkward conversation, my rule of thumb is to ask yourself how would you like to be treated in those situations. I think most of us would welcome an open and honest chat with our employers about what our retirement plans are. Be aware of the potential for age discrimination and also harassment on the grounds of age when raising the issue. Be sensitive when raising the issues and be empathetic during any conversations.

4. Remuneration

For many family businesses, the next generation almost regard themselves as custodians rather than owners of the business and they feel that the staff are responsible for the success of the business. Although not necessarily true, every generation shares a responsibility to not damage or destroy the legacy of prior generations and they do have to rely on the existing workforce. Whilst basic pay will be an important factor for many employees, there are other opportunities for them to feel invested in that success. Linking additional remuneration to the profitability of the business, considering some sort of opportunity to obtain shares in the business, or introducing a performance-related bonus are all useful ideas to properly reward your strong performing members of staff. Having the right bonus scheme, which is properly reflected in the employment contract is crucial.

As you can see, the message here is that any time of change in a family business is a really good opportunity to take a step back, to recognise the reason for success, and plan for the future. Making sure the staff are appropriately rewarded, making sure the contracts provide the protection you need them to do, and making sure the structure is in the best place possible will all require legal assistance. We already provide this assistance to a number of different family businesses and would be happy to speak to you.

We look forward to welcoming you to future events as we continue to build a community of like-minded individuals passionate about family-run businesses.

Our next FBU event will take place in Edinburgh on the 23rd May 2024.

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