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Golden Handcuffs, Part 4: Can a Family Business Thrive With Only Passive Heirs?

  • 12 August 2014
  • Author: Cari Holbrook
  • Number of views: 3017
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Golden Handcuffs, Part 4:  Can a Family Business Thrive With Only Passive Heirs?

Welcome to Part 4 of our blog series on “Golden Handcuffs: Passing Down the Business to Heirs.” Over the past few months, we’ve discussed ways to pass down your family business to your heirs. Some heirs may be active in the business, others may be passive; this scenario holds many challenges. In this post, we look at ways you can meet these challenges.

It’s a common scenario: You’ve built your business with the dream of one day passing it down to your children or, even, your grandchildren. But as they grow and find their own passions you realize that  your dream may not be theirs. Can a family business survive with only passive heirs at the helm? Folks like Sam Walton will tell you it can.

During its years of early growth in the 1960s, Walmart was run directly by Sam Walton and his brother, Bud. By 1972, the company had gone public, had more than 50 stores nationwide, and experienced record sales of $78 million.  In 1988, Walmart named David Glass its first of a long succession of CEOs from outside the family. Today, the company employs 2.2 million associates worldwide and serves more than 200 million customers each week at more than 11,000 stores in 27 countries. Currently, the Walton family owns over 50 percent of the company, and are worth a combined total of $152 billion. And while the Walton heirs still benefit financially from Walmart’s success, none are actively running the day-to-day business.  Only three family members currently sit on the Walmart Board of Directors.

While it’s likely your business isn’t the behemoth that Walmart is, you’ve worked hard to build your business. And, if you’re like most family businesses, you’d prefer to keep it in the family for generations to come. However, forcing heirs to actively run the business, when their passion to do so is lacking, is not an answer.

A well-planned succession plan can cover this scenario in several ways. You and your family may choose to name a CEO or a management company/partner (depending on your business structure) from outside the family, with your heirs maintaining ownership.  In fact, finding executive leadership from outside the family who fit the culture, values, and communication style of the “roost” can be very beneficial.  That person or team can offer fresh perspective and make less emotionally driven decisions for the benefit of the business. The key is to plan ahead, so that you—as the business owner—can make the ultimate decision on the type of succession arrangement that will keep your business and your family thriving for decades to come.

Image Copyright: roseburn / 123RF Stock Photo

 


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