This week I am broaching a subject not often written about in relation to family businesses. Managing the ageing patriarch or matriach. When is it time for an ageing patriarch (or matriarch) to let go of a business that they spent so long building up? How can a family business broach the subject? And what happens when the wishes of the business leader clash with the best interest of the business itself? – David Harland, Managing Director of FINH
If you’ve lived long enough, chances are you’ve known someone who lost some mental faculties as they got older. The signs are familiar enough: problems remembering basic facts, can’t keep track of a wallet or car keys, forgetting appointments, struggling with meals, struggling to pay bills on time, and a frustrating inability to think as clearly as they once did.
For the average family, the problems of aging faculties and memory loss is difficult to deal with. For a family business? It can damage company finances for generations.
It’s also a larger problem across many developed countries. Each generation seems to have fewer children than the last, and the population is getting older. In fact, a recent study in the UK suggests that England-based businesses lose £6.2 billion a year because of poor decisions by aging business owners. This begs an important question: when is it time for an aging patriarch (or matriarch) to let go of a business that they spent so long building up? How can a family business broach the subject? And what happens when the wishes of the business leader clash with the best interest of the business itself?
Most of the time, the dilemma of the reluctant aging patriarch is a side effect of poor or incomplete succession planning. I’ve written about succession planning in the past and continue to believe it is one of the most critical aspects of managing a thriving, multi-generation family business.
A real solution involves more than just procedural and legal planning. Business leadership also means grooming the next generation for eventual control. By the time any business leader is nearing traditional retirement age – between 60 and 70 – he or she should have a succession plan in place and a good idea about who/when they are going to be passing the torch to.
Dealing With An Aging Business Leader
Unfortunately, not all families plan ahead and not all businesses have the luxury of plenty of time to figure it out.
Old age strikes all of us, even successful family business leaders. Sometimes the problem is a lack of energy necessary to cross all of the “t”s and dot all of the “i”s. In the case of dementia or other cognitive impairment, the problems are more severe and challenging. If it’s time to move on, however, the existing ownership structure is not always going to accept change right away – too often it can be seen as a personal attack from an over-eager younger generation. No matter how it comes across, this is an important issue that needs to be addressed.
We now know a lot more about how aging affects the brain than we used to. Dementia isn’t a specific disease; rather, it’s the generic label given to a substantial loss in critical thinking and memory skills. The most familiar type of dementia is Alzheimer’s Disease, but there are many other forms as well. The bottom line is that it interferes with the normal thinking process, leading to errors in judgment, memory loss, mood swings and confusion.
When it’s entangled with major business decisions, it can have costly consequences.
2015 has already seen a few high profile cases involving questionable decision-making among aging family patriarchs and matriarchs. The most notable is the drama surrounding Liliane Bettencourt, the $38 billion dollar heiress to the L’Oreal empire in France.
Bettencourt is the wealthiest woman in Europe and is 92 years old. A lengthy investigation revealed that the now-frail Bettencourt had been placed on a daily regimen of more than 55 pills, was often confined to small chambers of her expansive mansion, and was showing serious signs of dementia. All the while, many associates of Bettencourt took advantage of her weakened mental state to the tune of several billion euros. Lilianne Bettencourt has an adopted daughter who was eventually written out of the will at the behest of the family photographer, who placed himself as sole heir instead.
This story illustrates the dangers of not having a procedure in place to deal with dementiaaging patriarch-based succession. It would have been better if those who loved Lilianne had asserted themselves and protected her – and the business – from even greater danger.
Speak with a family business expert and make a plan. These are some of the areas that need to be addressed:
- Older generations need to have succession and estate planning in place. This means a trust, a will, and a ready heir to assume control should anything happen. There should be language in the trust that can trigger succession if an aging business leader is found incapable of performing his/her job duties.
- The family business should have advisors they can turn to. Unfortunately, we often face medical problems as we get older that can turn into financial problems. A formal evaluation is necessary to check for medical factors. It’s probably best to have a trusted physician on one side and a trusted family business expert on the other.
- Make sure that younger generations understand their options. Unfortunately, not all such successions can be cleared without legal hurdles popping up. There may also be cases of abuse on behalf of other business associates. It’s imperative to understand what actions can be taken by concerned family and friends.
Dealing with these kinds of problems requires patience and deftness from all sides. It’s likely that feathers will be ruffled over such a delicate topic. But the fact of the matter is that older generations need to have a safe, stable nest egg to retire on. Younger generations need to keep the family business up and running to provide for themselves and their children. It’s understandable that older generations wouldn’t want to cede control over something they built, but this isn’t an easy topic, so it’s important to ask questions and put a plan in place before things get really difficult. Bring the family together and speak with an impartial business expert to help with the process. It’s important to get this right and help secure a bright future for everyone involved.
For Advice on succession in your family business please call FINH 07 3229 7333
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