Gone With The Wind May 2021
The young woman, in desperation, descends the wide staircase in tears running to the open doorway the gentleman is exiting through with coat and suitcase in hand and grabs his arm. She cries, “Stop! where will I go, what will I do?” He turns, looks into her eyes and says, “Frankly my dear, I don’t give a damn.” She watches him vanish into the fog and through her tears says, “I can’t let him go. There must be some way to get him back. Oh, I can’t think about this now. I’ll go crazy if I do. I’ll think about it tomorrow.”
“In the face of the imminent U.S. Civil War, the pampered socialite and petulant Southern Belle, Scarlett O’Hara, basks in the limelight, enjoying a lavish lifestyle. Knowing that the rich and red-hued soil of Tara–the ancestral cotton plantation in Georgia–is the only thing worth fighting for, the resilient woman will do everything in her power to control her destiny; including marrying the wrong men to maintain her enviable social status. Rhett Butler offers a way out, and a new lease of life.”
But before Rhett, “She is looking forward to a barbecue at the nearby Wilkes plantation where she will see the man she loves, Ashley Wilkes. She is more than a little dismayed when she hears that he is to marry his cousin Melanie Hamilton and in a fit of anger, she decides to marry Melanie’s brother. Now a widow, she still pines for the married Ashley and dreams of his return from the war. With the war lost however, she returns to Tara and faces the hardship of keeping her family together and Tara from being sold at auction to collect the taxes. She has become hardened and bitter and will do anything, including marrying her sister’s beau, to ensure she will never again be poor and hungry. After becoming a widow for the second time, she finally marries the dashing Rhett Butler, but they soon find themselves working at cross-purposes, their relationship seemingly doomed from the outset.”[i]
What does the plot of a best-selling book and Oscar winning movie have to do with family businesses and business owners? If we substitute Acme Family Enterprises for the plantation Tara and recognize Scarlet, who is probably a 2nd or 3rd generation owner of the business, will do whatever she must to maintain control of the family business after her father died, including marrying her sister’s boyfriend, and the brother of the woman who married the man she wanted for herself, who never loved her anyway; I think we have a good depiction of “civil wars” that happen in families and family businesses.
The point I want to focus on though is Scarlet’s famous words, “Oh, I can’t think about this now. I’ll go crazy if I do. I’ll think about it tomorrow.” I say famous because this was her go-to thinking every time she faced a difficult decision she did not want to make.
The founder/CEO of Acme Family Enterprises (his Tara) is meeting with his banker regarding renewing the company’s line of credit. The banker asks him what his plan is for transitioning the company when that time approaches. The CEO’s response, “Oh, I can’t think about this now. I’ll go crazy if I do. I’ll think about it tomorrow.”
The 2021 PWC Family Business survey found, “Only one-third of North American family business leaders say they have a robust, documented and communicated succession plan in place. Ideally, a succession plan is a living, breathing plan that evolves and adapts as the business matures, yet only 9% of family businesses in North America say they revised their plan in response to the pandemic. But for many others, there is still a long way to go. While most family business leaders probably have at least an informal succession plan in place, only a minority have fully embraced the need to not only have a plan but to document it and effectively communicate it to all essential parties.”[ii]
When Scarlett O’Hara returned from Atlanta after the war, she found Tara burned to the ground and up for auction. This is analogous to a family business that has no transition plan in place, or if a plan was drafted, it is possibly outdated and obsolete and highly likely it has not been communicated to the people who need to know what the founder/leader intends for transitioning the business to family, co-owners, or employees. “Tell it to your children, and let your children tell it to their children, and their children to the next generation.”[iii]
“Those (businesses) that have not yet begun planning for succession could be vulnerable to significant risks. The sudden departure of a leader, whether due to death or unexpected retirement, could result in fractured family relationships and a successor who doesn’t have the capability or credibility to lead, potentially weakening the company’s ability to move forward. Also, external stakeholders — customers, vendors, investors and financiers — could be reluctant to work with an organization that isn’t governed by a good succession plan.”[iv]
From the 2021 survey by the Family Enterprise USA organization, we learn:[v]
- What generation is the ownership of your family business? 26.4% is 1st generation, 73.6% is 2nd to 5th
- Which generations are active in the management of the family business? 22.2% is 1st generation, 77.8% is 2nd to 5th
- Have you passed ownership on to the next generation? 55% yes.
- Is passing ownership to the next generation important to the sustainability of your business? 84.5% yes.
- Do you consider your family business to be part of your children’s legacy? 79.2% yes.
Historical statistics also tell us that 70% of family businesses are out of business after the first transfer and only 3% are still in business after the third transfer. It is obvious from these statistics that having a well-designed and communicated plan should be the objective of every business owner if they want their business to be ongoing.
I live in California where we deal with earthquakes and wildfires. Florida has hurricanes, the southern states have floods, the northern states blizzards, and the Midwest has tornados. Is it wise to not prepare for these inevitable events? The transition of a business is as assured as the rains, snow, winds, and storms that create disasters when one is not adequately and timely prepared for them. Why are so many business owners not properly prepared for what they know will surely happen?
Before addressing the “why,” let us look at the possible “what” that can happen if “I’ll think about it tomorrow” is the current strategy?
The recipient(s) of the business do not have the training or experience to operate the business. This can be the situation if the owner dies suddenly. How long does it take to train a competent leader? I believe that process should start the day the business opens it doors, or the day a new leader takes over, he or she should already be training up their replacement. Normal estate planning has the spouse inheriting the business. If the spouse has another career or is a stay-at-home parent, they will be incapable of successfully running the business by themselves. The result is often a fire sale of the business at a substantially discounted value. “Start children off on the way they should go, and even when they are old they will not turn from it.”[vi]
Likewise, lenders and vendors to the business may demand payment of lines of credit and outstanding debts if they lack confidence in the new owner(s). My lead-in paragraph highlights the mentality of lenders when there is uncertainty as to whether the company will survive and be able to repay debt when the leader is gone.
If there are multiple owners and a lack of transition planning then a buy/sell agreement is likely nonexistent also, so the surviving owners will be in business with a spouse or children of the deceased; people they never anticipated or want as partners.
If there are other partners and the deceased partner’s family inherits a minority interest, will the majority stockholders take advantage of the deceased partner’s family?
If the children inherit the business and none are involved in it, who will run it and how will the children make that decision? Will there be a power struggle? Will some want to keep the business and others sell it and how will those decisions be made? These will be even bigger issues if some children are involved in the business and some not.
Now for the why. Most business owners do not want to think about anyone else running their business and not having a place to go to on Monday morning after they pass the baton. What is their self-worth now? The business was everything to them, their image, their passion, their gratification for their hard work and sacrifices for so many years, the trophy of their success. No one needs them anymore! That is not true, but that is often the fear they have.
There may not be a competent successor and no one in the family wants to own the business. If this is true it means the business will either shutter or be sold at a discounted price if no plan exists for a formal transition. It could be a sale or merger, but the process needs to begin long before the transaction occurs. If the founder/CEO is the business and he or she is gone and there is no one to carry on, the business has no value other than possibly the assets it owns, such as equipment and inventory. This would have a significantly negative effect on what will be available for retirement or inheritance.
If the intent is to pass the business to children and there are multiple siblings, discussing who will inherit what and who will run the business can be difficult and uncomfortable so owners will prefer to sweep it under the rug and let someone else deal with it. In other words, let the kids fight over it, and fight they will and likely the business will not survive or be severely crippled. Remember, 70% are gone after the first transition.
Using a little artistic license, combining the verses I quoted might read, “Start children off in the business if that is the way they should go, and they will be able to turn the business over to their children. Share your transition plan with your children so they can tell it to their children, and their children to the next generation.”
Let’s revisit our story. Though Scarlett was the owner of the plantation, Tara, it was Rhett’s money and business acumen that restored it. While not the owner, Rhett is the metaphorical CEO and business partner by marriage, and he is walking out the door. He is Scarlett’s husband, but she never really loved him because she obsessed over Ashly Wilkes, whom she could never have. She just used Rhett to get what she wanted. Scarlett never planned for this transition even though it was inevitable. She cries, “Stop! where will I go, what will I do?” He turns, looks into her eyes and says, “Frankly my dear, I don’t give a damn.” It was not the loss of a husband, but loss of her CEO that caused Scarlett to utter, “What will I do.” She lost the one man who loved her and helped her restore her business, Tara. There was no transition plan so now he and her business are “Gone With The Wind!”
[iii] Joel 1:3, Bible, NIV
[vi] Proverbs 22:6, Bible, NIV