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Family Business Founders As Consultants Published: Sunday, February 21, 1999 By: Dr. Manuel Angel Morales

Transition management is about a process of moving from one state to another. Thus, handling over a business that has become an extension of your identity (even if passing it to family members who are competent, experienced and respected) is a very difficult and complex dynamic.

Some founders just can`t do it, even when they know they have become less effective or that they should initiate such a process for the benefit of the succeeding generation. Others transition more smoothly and look forward to leaving daily stress and pressure behind in pursuit of those interests they ignored during the frenetic early years of creating and nourishing the business. Nevertheless, it is our experience that, the heads of most family business want to stay connected to the company. One possibility for achieving this condition is through a kind of consulting arrangement, says Patricia Shiff.

At first sight it may seem simple, but when you are dealing with the head of a family business, emotions and psychological factors often cloud the usually businesslike contract configuration. There are some concrete recommendations to cope with this organizational reality in a soundable manner. The founder and the succeeding generation have to talk honestly about their needs and what arrangements can be reached to comply with the expectations of both parties. Needless to say, it is very hard to have this open, frank and direct dialogue over these matters. The founder is not used to being asked what he or she needs. This puts relationships in a vulnerable position. The founder may not want to admit the dependence he or she has with the organization or have not thought about what would constitute a satisfying consulting arrangement. In this situation, an external advisor can be helpful when it comes to establish what the retiring leader really wants. It is important not to abandon this process.

When the retiring family business founder`s financial and emotional needs are minimal, the consulting arrangement can be very informal and the key leader could be available as a troubleshooter and a voice of experience. But that loose understanding will not work well if the founder has any misgivings about the retirement. If there is a possibility of a confusion of roles, it is important to galvanize a written understanding. What some of the researched elements to be included in such an agreement?

It should be crystal clear what the business founder will do. It should be something specific that he or she loves doing. A fundamental task could be that of enhancing relationships with main customers. Another element is establishing how much time the consultant/founder will commit to the task. Whether is one day a week or so that will depend on the project. Everyone the retired leader has contact with should know when the founder will be in the office.

A sensitive angle is that of acknowledging how much authority the consultant/founder will have in executive decision-making processes. This area is very delicate and depends on the size of the organization and the relationship of family members. Both generations have to recognize that the new role doesn`t give the departing leader an open license to do his or her own thing. There is also the topic of the compensation to be paid, if any. Outgoing leaders should be assured that their economic needs are met. If that financial position is not totally secure, be sure to provide consulting fees. This is a formidable juncture to be creative on deferred compensation agreements. Research indicates that leaders who are financially secure often work without compensation.

Finally, it is convenient to talk about a time frame for the agreement, stating an end date for the new role assignment, including options to renew. It may be that the retiring leader may not want to act as a consultant forever or may want to conclude the arrangement more promptly. If the retired leader has other life experiences to pursue this transition venture will easily flow. The opposite of this condition is also true. But at the end, once the senior retires, the two generations are no longer formal, day-to-day management partners. The new generation has to differentiate between the business, family and ownership issues. Formal authority will rest on the person signing the checks, the one with the daily responsibilities of the operations.

 


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