Attorney Danny Markstein, in the July 2006 issue of Estate Planning magazine, identified eight practices of successful families. Of course, not all families follow these practices, as indicated by Prince & Associates research in which 31.4% of family business owners stated that they avoid discussions of succession planning because they are "uncomfortable making the necessary decisions." In fact, it is the exceptional family that can speak openly about emotionally-charged issues like retirement, death, money and passing on power and control. The planner, according to Markstein, should be careful to identify, encourage and nurture these eight practices with his clients:
1. Articulate a clear vision.
2. Cultivate entrepreneurial strengths.
3. Plan ahead to reduce risk and act on opportunities.
4. Build unifying structures that connect family, assets and community, such as philanthropic activities and family councils.
5. Clarify roles and responsibilities.
6. Communicate.
7. Help individuals develop competencies.
8. Foster independence and provide exit options.
In conclusion, with the proper plan in place, a family business can be strengthened and allowed to grow and benefit future generations of family members. Dennis Jaffe, a professor at Saybrook Graduate School in San Francisco, and Tim Habbershon, a professor at Babson College in Babson Park, Mass., writing for Families in Business, cite the following real-life example:
Even after a merger, the J.M. Smucker Company has kept a focus on the Smucker family and their values. After the merger with Jif and Crisco in 2002, the ownership of the Smucker family dropped from 55% to 13%. But the Smucker family has taken focus off of family ownership; instead, they value having shareholders who share their common values.
First, the Smucker family values long-term performance and reputation instead of short-term profits, and they have incorporated this value into their shareholder system. Each new shareholder of Smucker gets one vote. But after four years of ownership, the shareholder gets ten votes. This ensures that people who share the long-term vision of the Smucker family-whether family members or not-have the biggest voice in the company.
Second, despite this technical change in ownership, the corporation has kept a focus on the Smucker family as a symbol of quality and of employees who are experts at making quality products. An advertising campaign begun in 2008 features Tim and Richard Smucker, now co-CEOs, as children growing up in Orville, Ohio in 1954. One commercial shows Richard staring at a fruit on a tree, waiting for the exact moment to pick it. The announcer explains, "Tim and Richard Smucker grew up learning that you have to pick fruit at the peak of perfection if you want jam to taste extra delicious." In another ad, Richard complains that no one asks him what he'll do when he grows up. The announcer again explains, "When your last name is Smucker and you live in Orville, everyone knows what you'll do when you grow up. You're gonna make the world's best jam." Smucker's has been able to take the focus off of the "accidental partnership" of brothers Tim and Richard, who run the company of their grandfather. Instead, the commercials focus on them as a "family of affinity" who grow up learning about what is needed to ensure quality. Each of the commercials in this campaign concludes, "For five generations, with a name like Smucker's, it has to be good."
As the Smucker example above shows, counseling owners of family businesses, especially in succession matters, is one of the most difficult tasks facing an estate planning professional. It requires tact and diplomacy, especially if the owner's desires are to meet with a minimum of family conflict on the one side and a minimum of taxes on the other. Fortunately, there are a wide variety of planning techniques available to owners of a family business. Through the effective use of the techniques discussed above, advisors can greatly benefit clients who own a family business.
Charles D. "Skip" Fox IV is a partner in the Charlottesville, Va., office of McGuireWoods LLP, where he concentrates his practice in estate planning, estate and trust administration, family businesses and charitable organizations.