Family Business and Succession Planning

THE ISSUE

Father (Joe) set up the company and his adult children, John and Mary, both work in the business. John and Mary want shares in the company and more say in running the business. Joe believes there will be time enough for that when he retires – he doesn’t plan on retiring any time soon. With the help of mediation they agreed a phased handover of the shares and revised roles in the business for John and Mary as well as for Joe.

Patricia contacted me – she had got my name from the Mediators’ Institute website – and asked if I would mediate a family dispute concerned with their business. Joe, her husband, had set up the business and worked at it growing is from a small seed to the company it is now. As John and Mary finished their education they came into the business. Joe made both of them start at the bottom so that they would learn the ropes. Joe was the only shareholder and director and there were no governance structures in place. The emphasis was in getting the job done, getting deliveries out to the customers and getting paid.

As John and Mary grew in the business they spotted ways in which things might be done differently with an emphasis on technology. They wanted more input in the decision making and they wanted shares in the company. Joe wasn’t ready to hand over either shares or control. He had heard their suggestions but wasn’t convinced they would work and didn’t try them. They were doing nicely as they were.

The family relationships started to break down and Patricia asked that they go into mediation to see if a solution could be found. She also wanted to be part of the mediation as any outcome would affect her.

PRE-MEDIATION

I met all of the parties separately to hear their issues and what an ideal result of a mediation would be for Each of them. The information gleaned at each of those meetings was confidential but it gave me a very good steer on the issues. At those meetings I went through the mediation process and the Agreement to Mediate with the parties.

THE MEDIATION

The mediation was set up for the four family members (two and two) and John and Mary outlined their issues and said they wanted shares and more control in the company. Patricia said she wanted an exit strategy for Joe so that he could over time reduce his involvement in the company but be paid a pension from it. Joe said he wanted to continue in the company for so long as he was able – he didn’t have any outside hobbies.

The exchanges at the mediation between the family members were frank and it seemed to me that all relevant issues were aired. This is always an important part of a mediation as you want the parties to feel that they have had their say.

THE OUTCOME

As a result of the negotiations in the mediation the parties agreed that John and Mary would immediately become directors and that Joe would now transfer 20% shares – 10% to each of them. Patricia was to be given 5% of the shares.

A governance structure was to be put in place whereby board meetings would be held on a regular basis and items minuted. There would be operational meetings held every Monday morning setting out the tasks of the week. Mary was to be in charge of technology working towards computerisation of records, accounts and other ways that technology could help the business. John was to be responsible for production and introducing new products on a phased and trial basis. Joe would continue to be managing director for the time being.

Over the next 10 years Joe would transfer his shares to John and Mary leaving him with 25% at the end of the 10 years. He would reduce his working hours over the same number of years and his salary would reduce proportionately. At the end of 10 years he would receive a pension from the company which would become a spouse’s pension after he died.

Without the mediation this result wouldn’t have been achieved. The family would not have sat down together and hammered out this deal and they wouldn’t have had the expertise to know what options might be available to them or how to structure such an agreement. The inclusion of the governance elements, if adhered to, will help the family by providing a structure for meetings and a time for discussion of business performance and ideas.