Why family business succession planning needs more than a handshake deal
The fiduciary case for a formal plan
For Harmon, the question of whether to formalise succession planning isn’t really a question at all. It’s a matter of fiduciary responsibility, one that extends well beyond the family dinner table.
“Unless the owner is the sole owner and stakeholder of the business, he or she has a fiduciary accountability to other stakeholders,” he said. “A critical aspect of fiduciary responsibility is ‘duty of care’. Simply put, the owner has an obligation to act in the best interest of the business, which extends to having the best leadership possible in place. The son or daughter does not automatically satisfy that obligation.”
A formal succession plan, he argues, is itself a mark of good governance. At minimum, it should address who would lead the business in an emergency – whether from sudden illness, death, or incapacitation. But ideally it goes further, mapping out a multi-year pipeline of internal candidates and setting clear criteria against which family and non-family candidates alike can be fairly assessed.
There is also a family dimension that often gets overlooked. “A proper, maintained succession plan plays a critical role in family harmony,” Harmon says, “ensuring expectations are set and ‘Lord of the Flies’ scenarios are avoided in the event of a sudden transition.”
The financial risks of doing nothing
For financial advisors working with business-owner clients, understanding the financial stakes of inaction is essential. Harmon is direct about the consequences.
