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Estates & Wills & Trusts, Tax

Governance strategy crucial to family business succession

Successfully transferring a company to the next generation requires planning and open communication between the owner, heirs and key advisors — including a disciplined governance strategy facilitated by an experienced lawyer, Calgary tax and fiduciary services lawyer Dennis Nerland tells AdvocateDaily.com.

Many heirs often do not have the necessary leadership, governance and ownership knowledge to ensure a smooth transition and the continued success of the business, explains Nerland, a founding partner of Shea Nerland Law and leader of the firm's tax and estate planning practice.

“This needs to be transmitted via an intentional education program,” he says.

To start, says Nerland, it is essential for business owners to decide which heir will take over which parts of the family business and then ensure they are prepared for their role.

A family wealth coach usually has specific experience in this area and can be helpful in determining how much education successors will need in order to adequately succeed in managing the business.

For example, he says, one child may only be a shareholder, whereas another may also be involved in the leadership and governance of the company. Once this is established, heirs can take courses in each of these areas for practical knowledge and participate in hands-on learning in order to gain experience.

A U.S.-based research organization called ‘The Family Firm Institute’ has also validated the governance approach as the key to success when it comes to passing down the family business, says Nerland.

“An experienced lawyer can add tremendous value through a disciplined governance strategy. The most value comes from holding regular — say, quarterly — family meetings that are professionally conducted, facilitated and minuted by the lawyer with the additional tools of agendas, homework, accountability and social debriefing post meeting,” Nerland says.

These meetings between family members and key advisors serve to keep the lines of communication open and allow business owners to identify where an heir may need further education or training in order to effectively take their place, he says. This is also a good way to help identify whether an heir may be better suited to another role in the business.

Ultimately, says Nerland, the most common reason for a family-owned business succession to not run smoothly is poor communication, “full stop.”

“There is no such thing as over communication in these situations,” he says.

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