It is not uncommon for family-owned businesses to have several family members involved in the business, whether it be on the board or in management. While this can be beneficial, it is important to ensure that successors are prepared for their roles. In this Beyond Succession podcast episode, we look at the tools available to help family successors be effective board members or managers, as well as how families can best deal with gaps to ensure a smooth transition to avoid any potential conflict.
Host Leah Tolton, a seasoned family enterprise lawyer, is joined by Erick Hamdan, Senior Advisor to Leder Holdings, Salvatore Corea, Certified Financial Planner and Principal at Sorrell Financial, and Nicole Osolinsky, Western Canada Tax Partner at KPMG. All three guests are experts in the family enterprise field and each provide a unique perspective and invaluable insights into this episode’s topic.
Tune in for a blend of wisdom, strategy and foresight that can transform the challenges of succession into opportunities for legacy-building and enduring success.
Transcript
Salvatore Corea: [00:00:00] I think there's an interesting dilemma that happens in the, in the whole succession world, both from people that get moved up into a new role or into an ownership structure far too soon when they're not ready. But there's also that willingness to move up too quickly. We all want to be the next president.
We all want to be the owner. And I think there is a danger in, uh, moving up too quickly, succeeding someone too soon. When you're not ready, and I don't think enough time goes into the mentoring, uh, to the education, to the understanding of each other's personalities.
Leah Tolton: [00:00:46] Welcome to Beyond Succession, a podcast series within the Bennett Jones Business Law Talks podcast that discusses topics around navigating the complexities of the family enterprise. I'm Leah Tolton, partner at Bennett Jones LLP, and I'm a family enterprise and corporate lawyer, passionate about helping family enterprise businesses thrive, and navigate the complexities of governance, succession, and growth.
Before we begin this podcast, please note that anything said or discussed on this podcast does not constitute legal advice. Always seek proper advice from your legal advisor as every situation is different and outcomes can vary.
It is not uncommon for family owned businesses to have several family members involved in the business, whether it be on the board or in management.
While this can be beneficial, it's important to ensure that successors are prepared for their roles. In this episode, I look at the tools available to help family successors be effective board members or managers. As well as how families can best deal with gaps to ensure a smooth transition to avoid any potential conflict.
Joining us today are three experts in the family enterprise field, and they will provide some invaluable insights on today's topic. First, we have Erick Hamden, Senior Advisor to Leder Holdings, an Alberta-based private holding company and family office with investments in real estate and steel fabrication.
Second, we have Salvatore Corea, a Certified Financial Planner and Principal at Sorrell Financial. Sorrell Financial is a national leader in providing unique life insurance solutions and has designed custom strategies for some of Canada's leading entrepreneurs and professionals.
Lastly, we have Nicole Osolinsky, Canada Tax Partner and leader of KPMG's Family Office Western Canada practice. She has more than 28 years of experience working primarily with owner managers as well as their families.
I'd like now to have a discussion with all of you about the topic of succession. At the family and ownership level, uh, we could look at this two ways. We could look at this in terms of succession to the wealth and the property that the family enterprise has generated. But today I'd like to focus on succession of the people, you know, succession from mom and dad, maybe to those siblings who are working in the business, maybe even to some of those employees in the business. You know, it could involve again, as it has in the past, it could involve a need to inject some growth capital. All the need to expand.
I'd like you to put that hat on for me and think about the topic of succession as it relates to preparing people for their roles in management, if they're in the business or on the board, if they have a governance role and what we do to get people ready for those roles. With that lens, I'd like to ask you, what tools can be effective to develop family successors, to be effective board members or managers of the business?
Nicole Osolinsky: [00:04:15] I'm going to argue there's a third category, which is succession as an owner, because I do think there's skills to be learned to be a good owner. You know, I think the first thing to do is to step back and think, what skills do we need for this role without looking at who the person is? It's like the blind audition or something.
If you sat back and thought, what are the skills that the leader, the managing leader for this business needs? What are the ideal skills that a board member needs? And then look to the potential candidates and say, and build out a matrix. So, these individuals have these skills, but they're, you know, they could improve or add to their tool bucket in these areas.
And so, what steps can we take to help them build those out? Is that some further formal education? Is that PEG groups or some type of mentorship programs? Is that? Working elsewhere in the business is that shadowing somebody, you know, maybe it's a period where we need an interim CEO or an interim board member for a period of time who's seasoned.
That's going to be a mentor or a job shadow for that person. So I really feel that too often we think we kind of look around at the candidates and say, well, you seem like the natural choice, but you haven't really inventoried what you're looking for. And sometimes maybe a certain individual exhibits a skill that you gravitate to and you think, well, you're the natural choice is the next leader, but somebody that maybe isn't as boisterous in that skill level actually has a lot of other skills that they can offer.
Salvatore Corea: [00:05:55] I think there's an interesting dilemma that happens in the, in the whole succession world, both from people that get moved up into a new role or into an ownership structure. far too soon, when they're not ready. But there's also that willingness to move up too quickly. We all want to be the next president.
We all want to be the owner. And I think there is a danger in, uh, uh, moving up too quickly, succeeding someone too soon when you're not ready. And I don't think enough time goes into the mentoring. Uh, to the education, to the understanding of each other's personalities on what are my strengths. I may be the boisterous one, I may like to come in earlier and be there so everybody sees me and on the other side I may be the quiet person that thinks through the problems more as a problem solver and takes a little bit more time to come to the table.
I don't think we do enough of that in our discussions with families. We say, well, you need to think about the next generation. You need to think about who, uh, that you need to move your key employees up. Otherwise they're going to leave. And I think there needs to be more discussion amongst our peers that are advising our clients on not moving people into a role that they're not ready for too soon because of fear of losing them.
From a family point of view, I think people should encourage their kids or their siblings to go get experience somewhere else, bring in different ideas. Don't be afraid to understand what other companies are doing or other thought processes are to challenge the status quo. And I think there's that block in the mentorship cycle of moving and succeeding people.
Leah Tolton: [00:07:38] So tools can apply. Well, tools are needed in all three circles or rooms as we've been. Speaking of, we need to consider successors, uh, to ownership. We need to consider successors to business operation, and we may need to consider succession to family. And so some of the tools could be considering an inventory of skills that people have that may be applicable to those three roles.
We could consider mentorship. We could consider education. We could consider outside experiences. What do you think about that? You've seen this, Erick, in, in real life, uh, in various settings. What's your thought about how those things can all fit together?
Erick Hamdan: [00:08:21] Maybe we won't, we'll start with not using the word succession.
I think it has a negative connotation, um, or can. There's a show called succession and it's not.
Leah Tolton: [00:08:33] We're not trying to go there.
Erick Hamdan: [00:08:35] We'll call it continuity. That's a good one. Succession can be very transactional. Yeah. Um, there's a, there's a, an end to it. There's a finite term to it. It can also be interpreted as, uh, as long as we have the estate plan or the tax legal financial aspects of it, we're, we're, we're good.
Like we have succession. We have. plans. But what it really is is continuity, right? It's like, how do we preserve the continuity of this business? Or this enterprise or this family as the individual protagonist participants are moving to doing different things? What type of planning do we undertake so that it doesn't happen reactively when a Thunderbolt event happens, which is typically when it really does happen, right?
Incapacity. You know, a death, a problem, and then everybody tends to react to it. The estate plan is done, and there's a, I have to make a lawyer joke here, I saw a visual one day where there's a
Leah Tolton: [00:09:39] This is episode four, and we're just getting to the lawyer jokes.
Erick Hamdan: [00:09:41] There's a lawyer standing on the body of his client, and he's like, well I had to kill him to see if the estate plan worked.
It can work perfectly.
Leah Tolton: [00:09:51] I gotta say, I haven't heard that one. It's a good one. I've never heard that one before.
Erick Hamdan: [00:09:55] It goes beyond that clearly, right? Yeah. That's the transactional aspect. So it's simply, okay, we are going to undertake or, or make a continuity planning, a key cornerstone of our overall strategic planning, our overall ownership dialogue, family dialogue, and do it in an empathetic way, appreciating that there's some personal elements that work into that identity elements that work into that.
And the most important thing in my mind is this. to find a place for the quote unquote exiting individual to still feel valued, influential in a part of, of the environment that we're creating, right? That that's key. Cause alternatively you just feel like you're being pushed aside. Well, I built this. Why am I getting pushed aside?
Uh huh. No, you're moving up to this role or, or you're moving up to this particular influential element or things that you do.
Leah Tolton: [00:10:41] Or you're key to maintaining continuity.
Erick Hamdan: [00:10:42] Correct. Or you are the, the, let's call it the brand. You are what people see as the business. So there's some important elements to what you do, but I don't think that we can continue on in perpetuity unless we begin to develop some type of continuity planning, which entails not just you, right, but the key executives, the key board members. Okay, now what type of skills inventory do we take? What type of methodology do we? So I, that's how I like to think of it. And if the individual being quote unquote succeeded isn't down with that, is having some difficulty absorbing that, it is hard to enact.
There's a whole, a big element of that self awareness that comes with, wait a minute, I won't live forever. And if I live forever, I certainly don't want to work forever. Perhaps there's other things that I could do, but I want to retain what I do here. So how do we reconcile that with continuity or quote unquote succession?
Leah Tolton: [00:11:41] I really like your continuity concept. So we're going to go with that. So we've heard from everyone about the kinds of things that you can consider. When you're thinking about succession to ownership or to business roles or to family roles. And I want to think beyond the typical lawyer estate plan here.
I'd like to focus on the business part here and the operations and how, how we continue with that. You know, you're right. The lawyer's plan is It's relevant, but it's not necessarily the thing that is the only thing that you need to maintain continuity here. So, if we have looked at what we need for skills and abilities, we've...
We've, uh, sent some people for education or we've had people work outside the business. We've identified that the owner is not going to live forever. And we look at that whole picture and we think there's some gaps that we need to fill. And let's assume for the purpose of this question that we have gaps in the business circle, that there are some.
Things that we need to fill there. Maybe we don't have everything we need to continue and ensure continuity. What kinds of things could we do to fill those gaps? If someone doesn't have all the skills, if someone doesn't have all the education, other than those tools that we've already talked about. Are there other things we can do?
Erick Hamdan: [00:12:59] We're getting into the meat of it. If you're going to formulate an org chart, That matches up to the strategic objectives of the business. And we, and you come to the conclusion that you have some holes in that org chart, some risk, right? Um, then I think, or some of those spots in the org chart are being filled by individuals who don't have the experience and skills.
Maybe their role has outgrown them, be it family or not for the sake of the business. You need to be able to begin to modify or, or adjust accordingly, right? And, and just put an org chart in place that has everyone working at their highest and best use in the organization, right? And so when you incorporate family into that conversation, that can be very challenging and that's where you match it up with.
Yes, one of the criteria may be that we need family involved in the business. That is a key foundational criteria, but is it at the expense of. experience, skill, capability. And those are really the conversations that need to be had at the onset. We were talking about family councils, et cetera, right?
Because that is a trade off, right? You can, quote unquote, sacrifice business performance for the sake of having a more. Conducive to employing family environment. And that's okay. That's your culture. That's your philosophy. That's your approach. But how that cascades to your non family members who are also managers who are aspiring to be something else within the business.
You have to consider that, right? You have to play that into the whole conversation. But again, clarity is kindness. If you have those conversations at the onset, then there's no misunderstandings, if you will. Clarity is kindness. If you, if you have those conversations, you have a business unit or a division that needs, um, that's not performing.
It's being ran by a family member. That's where the rubber meets the road, right? Are you, you know, how do you have that performance correction conversation? Or maybe even a, Hey, your, your, your highest and best use may be in a different place in the business. And we're going to bring someone from the outside as an example to run this group or run this division without creating some.
Some tension or some chaos if you haven't elaborated or defined at the family council level or at the governance level the criteria or the important criteria to make those decisions because if you don't deal in the family enterprise, those decisions are fairly thinking about shareholder value creation, you know, there's less.
Confusion or less ability to be misaligned, right? You're trying to do what's best for the business over the long run, right? But you're fluid in your decision making because it's only the business circle you're dealing with. You've got a family member involved, you've got to be very thoughtful about it.
And that's where it gets tricky. And hence where... You know, if it's a succession discussion or a continuity discussion, that's where it fits all in, right? Like, okay, well, how do we talk to mom or dad about the fact that it's time to move to the next place when they feel still very capable? And that's a hard conversation, but it's, it's part of the process.
So early and proactive is better than reactive. Something happens.
Nicole Osolinsky: [00:15:52] Making those family council decisions outside of having real live faces attached to the boxes on the org chart. It's an easier time to say, are we family first at all costs? What types of trade offs are we willing to make? And then you can fall back to that when you're faced with reality.
Leah Tolton: [00:16:09] And do that before you have the crisis event that occurs that means that you have to make the decision.
Nicole Osolinsky: [00:16:16] Exactly. Yeah, for sure.
Leah Tolton: [00:16:17] What about gaps at the ownership level? You know, we've talked about, uh, owners, uh, owners appointing directors, how, you know, a board of directors can be really effective, uh, if it's got proper governance structures in place.
And, and I think your comments, Nicole, about, uh, skills and your comments, Sal, about experience are relevant here. What if we don't have people in the family who are... prepared or we have gaps in their skill level and preparation to act as board members to make decisions for the ownership group. What can we do then?
Nicole Osolinsky: [00:16:55] Well, certainly, you know, there's the option of looking to external board members, having more of an advisory board where family members are participating in some form of board scenario. I think again, there's, there's a, if you want to be a board member, then these are our baseline skill set. Here's a learning path to help you get there.
And here's accountability. You need to show that you've grown and developed on that form. The other side, sometimes, you know, because there, there are people who, who want to be involved, but they don't have that, the skill set that's needed. And they're looked at through the vision of, well, this is the, this is the slot.
This is the, the, the square peg we want to fit you into, but you're a round hole, so we don't know what to do with you. But you know, really. Think about what other skills to the round hole have and how might, you know, I would start thinking outside the box, how can they contribute to the business? There's this.
It's a great little comic I saw once that said, you know, we're all born geniuses, but if you judge a fish by its ability to climb a tree, it'll think it's an idiot for its life. Right? So how do you, how do you zone in on what uniqueness you do bring? And maybe there's a role that wasn't even contemplated.
But now there's this ground hole for the round pig. Right.
Leah Tolton: [00:18:14] And, you know, I think that that's an important observation to make in the context of comments that you've all made about family enterprises as opposed to family businesses. Exactly. You've encouraged us all to think beyond the box of the operating business itself and think about other components of the family enterprise.
That also need to have governance structures and strategy and we'll also need people to fill these roles and ensure continuity in all of those places as well. Sal, any comments that you have?
Salvatore Corea: [00:18:45] Yeah, I've been thinking just when you made the comment about the gaps in the business and the gaps in the board, I believe that it comes back to the other episodes we talked about when it comes to governance and, um, the tools that you put in place, uh, to help the family get organized.
So how are you hiring? Who are you hiring? How are you retaining quality people? Are you making it an environment where people want to stay and move up and maybe give them an option to become an owner and make it worth their while to mentor, to assist the family? If we go back to Nicole, your example of the doctor a couple provinces down that is just an owner.
That person, she or he needs to feel confident that that board that is in place is of a high quality board and that board then is entrusted to make sure that the right people are in place to hire those business people. So I think it comes back to that governance structure and the belief of the family on how you hire and how you treat people to make sure those gaps.
are dealt with before it becomes an issue for the continuity of ownership, the continuity of the business. If the family does what they need to do right, that continuity will happen whether a family member is on the board or a family member is in the business. And I think when you can set up your business or your board to where you can sit back and let it run on its own, you've done a good job.
Leah Tolton: [00:20:21] You know, it's interesting how the topics that we have been talking about in prior episodes have all come full circle here. You know, it's interesting that that circle is that metaphor too. You know, we keep coming back to those, those same themes and those same topics that apply in every one of these, these settings.
Erick Hamdan: [00:20:38] It depends. Um, I was just thinking about Sal's comments and it depends on where the enterprise is at. Like if you think about an example where the family or the business has been exited, sold, and you've got, like you had a liquidity event. Well, the go forward skillset is entirely different than the pre exit skillset, right?
Absolutely. You know, okay, now you are in a capital allocation mode entirely. Right. So maybe I built a great logistics business. And I was a very, very good and had developed an entire continuity plan around very good logistics management capabilities, but we were able to or determined or decided for air B reason that we were going to exit the business and monetize the retained earnings and value harder and work.
blood, sweat, and tears for 50 years. And now we've got a bucket load of capital to reallocate. My skill set is completely, I wouldn't say relevant, but it's different. I need a different skill set. Um, I need to find. Or determine how to best now, that's the self awareness in me to say, wait a minute, I need to find the right board makeup or the right advisory makeup, because what we did before is different than what we do now.
Right? And, or how we educate our, Family is going to be very different, right? That's where you get into board members that have capital allocation skills or, you know, whether they've worked in, in pension funds or, or private equity firms as potential board advisors or board members, because you're in capital allocation mode versus being in a scenario where your beachhead business, your, your, your original business is still part of the portfolio and you've kind of diversified from it.
You've got some real estate, maybe you've got some other investments, but this. Core skillset is still the operating business skillset versus capital allocation skills.
Leah Tolton: [00:22:30] Well, I think you're the one who used the concept in a prior episode of evolution, right? So it sounds like that concept of evolution also applies to considering what skills we need to have to effect proper.
Continuation of the business in its new form in all of the rooms that we talk.
Salvatore Corea: [00:22:49] You know, in that example you just gave where you talked about the operating business being sold and not having the right skill set. To me, I go back to what you said at the very start of our process of taping is, it sounds like the business family has evolved to the entrepreneurial family.
And so the question I'm going to pose is, we have that board level at the business level. Do we need a different board level at the family level that is more entrepreneurial in allocating capital, allocating investment decisions, creating an investment policy statement for the family, uh, because sometimes we think that if we have a board at the business level, well, that board should suffice for everything.
Well, that's not necessarily true, I don't think, based on what you're saying about the different skill sets. Right. So I think that evolution and continuity. Continues to move on where the family wants to go.
Leah Tolton: [00:23:50] Nicole, I'm going to turn this to you for a final comment.
Nicole Osolinsky: [00:23:50] Feels like a big topic to try to round up in one final comment.
I just think, first of all, Erick's comment at the beginning that succession is, you know, probably not the right word. I think it is important to flip the switch and think of it in terms of transition. I do think it's important to think about transition at the business level, at the ownership level, at the family level.
And That transition is not only the day to day management, but at your board level. So there's, there's so many elements that are, that are a part of it. And many business. Entrepreneurs and professional advisors, quite frankly, get focused really on moving boxes around and who owns shares, which in my mind is actually not ownership transition.
That's a legal transactional step. It's a, it's a lightning bolt event, but it's, it's not transition. There is a skill set involved with being a stewarding owner, understanding your role of accountability on capital, on risk profile, on ensuring that my own, Estate documents are in order and things like that because those are my responsibilities as an owner.
So I yeah, I think that that's what really sums up to me at the end of this conversation is that there's multiple levels of transition and that transition is not as I say The lawyers and the accountants getting together and moving a bunch of share capital around.
Leah Tolton: [00:25:17] People make jokes about that. I know.
Thank you so much to all of you. This has been just such a wonderful conversation. We could go on and on. There's so much more to say, but I do thank you all for taking the time and for joining me today. Thank you, Leon. Thanks for joining me on this episode of Beyond Succession, a series within the Bennett Jones Business Law Talks podcast.
Make sure to hit the follow button on whatever platform you are listening from so you get notified whenever we release new episodes. Also, don't hesitate to reach out if you have any questions about challenges or issues that you're facing in your family enterprise. Take care. I'll catch you in our next episode.
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