HBO’s award-winning Succession follows the plights of the Roy family, dysfunctional heirs to their father’s billion-dollar media empire. Patriarch Logan Roy, founder and CEO of Waystar Royco, is within retirement age and in questionable health but has not formally decided how or when to hand over control of his company. The series follows chaos amongst the Roy family as Logan’s children pit themselves against each other with the hopes of being the next in line to run the media conglomerate.
While the series is filled with theatrical twists and plenty of backstabbing, when we strip away the scripted television drama, a fundamental question in family business planning remains: What’s next? Like Logan, only nine per cent of business owners have a formalized, documented succession plan, according to data from Canadian Federation of Independent Business. And while approximately 40 per cent do say they have some sort of informal plans, that still leaves just over half with no plans at all.
Whether it’s a billion-dollar media conglomerate or a modest mom-and-pop operation, here are three succession-planning essentials for every family business owner to consider:
Understanding the importance of corporate governanceEarly in the series, a stunned Kendall and executive team learn that Logan secretly borrowed over $2 billion from a bank and secured the loan using his stock in Waystar Royco. How is it possible that a company could amass such enormous debt unbeknownst to most board members and family stakeholders? Much of Succession’s appeal is the satirical mess surrounding Waystar’s often questionable and mind-bending business practices. And for professionals who work frequently with family-business owners, we understand how structured corporate governance can make or break a company.
Interpersonal dynamics in family businesses are typically more complicated, as discussions of critical issues like leadership succession and compensation can often become uncomfortable, muddled, and emotionally tense. Establishing a system of structured processes for family business governance can help guide the company, family, and ownership in making the best possible decisions regarding accountability, assurance, and control – while still focusing on strategic growth.
Knowing when to step awayWhen Logan Roy’s failing health becomes public knowledge, he faces an attempted coup and hostile takeover of the company including family turmoil and political uproar. Failing to prepare for an exit in a family business can spark resentment, split family members, and cause damaging uncertainty for stakeholders.
Discussions surrounding death and mortality are often delicate and fraught with emotion. But naively believing you can indefinitely hold onto full control only sets the business up for failure. Succession planning is critical for any business to endure for the benefit of all family members, regardless of their involvement in it. Unlike the Roy family, everyone involved should know where they stand and why.
The key to a successful transition is starting early. Don’t wait until you are ready to retire, since your planning should be in place in case of an unexpected death or disability. Communicate your wishes and establish a documented succession plan to transfer leadership control in stages, allowing mentorship time for future leaders and the ability to ease through any potential difficulties in the process.
Bringing in the professionalsAlthough the wish of many parents (and their kids) is for the kids to be able to step in and run the family business, this is not always feasible or practical. Being part of the next generation is not an entitlement to run the business. Quite often the kids do not have the skills or desire to do the job. As well, as we see from Succession, the kids cannot get along and cannot work together. Unfortunately, this generally leads to the failure of the business.
Finding experts to help navigate the complexities and legalities of family succession planning should be one of the first considerations a business owner takes. Aside from Waystar Royco’s general counsel, Gerri Killman, the media empire lacks a structured team of professionals to guide leadership and share objective advice (like perhaps avoiding gathering your family and employees during a corporate retreat to humiliate them with a rollicking game of Boar on the Floor).
Many businesses may already have advisors in place have been with the entity for years, however you may want to consider bringing in some fresh faces to assist the next generation. With the proper structures in place, the family business can align behind one vision to pull the rope in the same direction.
Bringing in a team of professional advisors helps a family business become successful. It eases the transition from a mom-and-pop shop into a true business. Professionals, such as accountants and lawyers, will assist business owners in professionalizing their business. They can assist in establishing proper corporate governance, providing financial analysis, and building proper HR protocols. The founder generally knows their “product” inside and out but often lacks the fundamentals of running the business. A good founder can identify this weakness and will surround themselves with the proper professionals to compensate. Professional advisors bring a wealth of experience and expertise that can be leveraged by the business to grow, protect itself, find new opportunities and organize itself for the long term. They can help structure everyone’s affairs to ensure an orderly and tax efficient transfer of the business and estate to the next generation.
These professionals will be especially useful in helping with business succession planning. They can evaluate the abilities of the next generation with an unbiased lens and help the founder determine if one or more of the kids really can step into leadership.
A well-built business’s strength occurs when no one individual is key to the future success of the business. Once a business can withstand the loss of any employee, including the founder, it is built to last. Every business owner should strive to build a business where no employee is irreplaceable.
While Succession may be made for television drama, it definitely holds valuable lessons for family businesses. Succession will debut its third season Sunday, October 17 (9:00-10:00 p.m. ET/PT) on HBO and will be available to stream on Crave in Canada.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.
Photo Acknowledgment: David Russell/HBO