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Heritage Institute: 12-point plan to help family businesses sustain

WEST DES MOINES, IA (DTN) – If farm families wonder how many generations of them will continue the smooth transition of their operation, the success rate might catch them off guard.

The statistic is a little alarming, said Johnne Syverson, a family business consultant in West Des Moines, IA.

“Ninety percent of families fail to keep their families and their fortunes together for more than three generations. It’s even worse for family businesses, where 97 percent fail to keep their business and their families together,” he said.



The path to losing both the business and family harmony isn’t complicated, said Syverson. “You start with controlling leaders. And in the next generation, you have sibling rivalry and in the third generation, you end up with cousins who don’t know each other.”

On the other hand, he said 10 percent of successful families start with “enlightened leaders” in the first generation that grow into “sibling teams” in the second generation. They end up with a “cousin consortium” in the third generation made up of cousins who have bonded over the years and know and trust each other.



Syverson’s company, Transition Point Business Advisors, follows a 12-point plan developed by the Heritage Institute to help family businesses sustain wealth and unity.

1. Foster strong and effective communication and build trust between generations. Family legends and a shared history build the foundation that teaches individuals they are part of something bigger than themselves.

2. Develop, maintain and regularly re-visit your vision for the present and the future. This is especially important as farms morph from sole to multiple managers and owners.

3. Schedule regular retreats. “These get-togethers revolve around three major activities: family fun, family development (guest speakers from the worlds of business, the arts, philanthropy or other fields of interest) and the business of being a family. The activity must be separate and distinct from any business or investment the family owns. Children get to see their parents involved in some activities as equal participants, not as facilitators or leaders,” Syverson explained.

Lenz Farms, a diversified farm operation in Wray, CO, organized a bowling tournament for everyone at the farm family retreat in February. The high scorer won the traveling trophy which gets an additional “ornament” each tournament. This year they added a pair of boxer shorts.

4. Promote a balanced definition of the meaning of “wealth.” Wealth is not only financial, said Syverson. “It is also wisdom, community and foundation (family, health, talents, attitudes).”

5. Keep the family business (including investments) separate from the business of being a family. “The ideal is that everyone understands that while you are a family that owns a business, you are not a business that owns a family,” said Syverson.

6. Identify the “roles” necessary for the family to be successful (non-financially as well as financially). “There are a host of business, financial and legal issues that directly affect the family about which many children – even 50-year-old children – simply have no clue,” Syverson said.

“A common theme among the 90 percent of families who are unable to ‘keep it together’ from one generation to the next is that the vital roles that keep things humming are either misunderstood or are a complete mystery to the children and grandchildren.”

7. Inspire individual family members to participate in the business for their own individual reasons, not because of undue parental pressure or the chance to win a loved one’s approval. Sometimes that means giving incoming leaders more rope to make decisions.

8. Train and mentor each generation. “Give them ‘pre-inheritance experiences,’ to prepare them for the real responsibilities they will take on later in life,” said Syverson. “This can be accomplished in ‘small bites’ with relatively small amounts of money and authority being given to the children in the next generation – no matter how old they may be.”

9. Facilitate the genuine transfer of leadership from generation to generation. “Effective leadership transfer takes place intentionally. It does not happen by accident or by chance,” Syverson noted.

10. Require true collaboration between your professional advisers. “That doesn’t mean by e-mail, fax, phone and brief meetings,” cautioned Syverson. “True collaboration is possible and you should expect this level of service. Also, teaching the next generation how to interview professionals and what to expect from professional relationships will help future generations of your family maintain the highest level of professional support.”

11. Create mechanisms for on-going family governance. “This may sound formal or complex. But what it means is having a process by which a family makes decisions as a group,” explained Syverson.

“Conflict is a universal family condition. It’s not the dispute that destroys the family, but rather the family’s inability to manage the conflict created by the dispute,” Syverson said.

“When, not if, a dispute arises, the family embraces the disagreement in a more relaxed manner and works through the issues using a previously-agreed-upon process.”

12. Do it now. “Successful families take action,” noted Syverson. But what if one or more of your family members is not ready to move ahead with this process? Syverson quotes Tom Rogerson, Managing Director of Bank of New York Mellon’s Family Wealth Services: “Go forth with the willing.” To be successful, the entire family does not have to be on board at the launch, Syverson said.

To borrow a quote from one family patriarch, “There may be bad times to invest in markets, but there is never a bad time to invest in your family.”

editor’s note: this is the second installment of a two-part series on transitioning the family business. part 1 was published in the 3/5/2011 edition. read it online at: http://www.tsln.com/article/20110306/tsln01/110309957


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