Beyond Succession: Family Business Governance And Effective Decision-Making For Success (Podcast)

Lynne Fisher: [00:00:00] And in family meetings that I've been involved with and have facilitated, consensus can mean everything from, we have to agree on everything up to a certain dollar amount and then dad gets to decide that's consensus for them. Definition of consensus that I have. Uh, scene is we all have to be okay to leave the room, even though we're not all, all in full agreement with the decision, we have to be okay to leave the room and say that we have come to a decision and we'll stand by that decision as a family.

Leah Tolton: [00:00:44] 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 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.

Today's episode is centred around the essential topic of family enterprise governance. We'll explore three vital areas. Foundational considerations for effective decision making. The impact of decisions across processes and categories and strategies for gaining consensus within your organization. I'm excited to have Lynne Fisher, National Team Leader of ExitSmart at MNP, join us today to provide her perspectives on these areas of family enterprise governance.

Lynn, welcome to the Business Law Talks podcast.

Lynne Fisher: [00:02:10] Awesome to be here. Thank you, Leah.

Leah Tolton: [00:02:13] Can you give us a little bit of background about the ExitSmart program and your role with that?

Lynne Fisher: [00:02:17] Sure, MNP's ExitSmart services for business owners that are looking to transition their businesses from the current ownership to either family or employees or to a third party.

And as part of that, we work a lot with family owned businesses. And as part of that, we also work with their governance and decision making approaches and. All of the other fun things that come along with family businesses. So, I've been leading that service for about, uh, eight years now. And before that, I was also working in this area of family business.

And I'm part of a family business as well. So, uh, it's familiar territory to me.

Leah Tolton: [00:03:01] So you bring us lots of expertise about today's topic.

Lynne Fisher: [00:03:05] I have the scars to prove.

Leah Tolton: [00:03:07] Oh, good to hear. Well, let's, let's move on and talk about how you may have obtained some of those. You know, when you and I were talking about this, uh, episode and this talk that we were going to have today, we talked about, um, a really specific component of governance.

We were talking specifically about communication and decision making, and I'm hoping that you can share some of your thoughts about that today. You know, are there some foundational principles for decision making and family enterprise that you can share?

Lynne Fisher: [00:03:35] You know, as I was thinking about this, Leah, you know, it occurred to me that probably the most important principle is to have in place an approach and philosophy to how decisions are going to be made and, and have those in place in advance of big decisions being made. And so, you know, families approaches are, are influenced by their history, by their experience, by so many things. And so, taking the time to actually think through how they want to make decisions as a family and what their family values are because Every decision will be tested against the family's foundational values.

And so I think those are two of the main ones. A couple of the other ones are really about, um, having guidelines and ways of dealing with each other when decisions come up. And so guidelines might include things like everybody being honest and being, um, straightforward in their views. Being clear about their expectations.

Even though it's a little bit scary. I think those are some of the main foundational principles. Probably the values, the having a philosophy in place, and then having those ground rules that sort of underpin how the family works together.

Leah Tolton: [00:05:03] That's interesting. So as I, as I hear you talk about these things, it occurs to me that probably having given some thought to these matters in advance and having some rules to put in a container around how to deal with each other probably goes a long way to build trust among family members and trust in the validity and the equality of the decision.

Would you agree with that?

Lynne Fisher: [00:05:24] Totally, you know, our experience and I'm sure yours is that families who haven't gone through that kind of a process or haven't made any large significant decisions together, they don't have the experience and they also don't have the trust. It's very difficult to jump into a big decision like, shall we sell the family business or shall we have a family member, uh, be considered as the next president.

When they haven't had that foundation, when they haven't had that experience, and they haven't built that trust through a process that, um, has been developed over time. Right.

Leah Tolton: [00:06:06] And so, you know, certainly by the time people are coming to talk to their lawyers, perhaps that trust has been damaged. And so, you know, in our environment, things tend to become adversarial, or they can become adversarial, and, and I think It would certainly be more desirable for many of the players at the table if there were some ground rules around how people deal with each other and how information will be considered and decisions are made.

Um, can you speak to any of those kinds of processes that you have used in your practice that you've seen be particularly effective?

Lynne Fisher: [00:06:39] In terms of, of the ground rules and, and the processes, yeah, for sure. So, Some of those are being really clear and understanding, uh, the type of decision that's being made.

Some decisions have little impact, right? They have short term impacts. They are very routine. For instance, a family that has a lot of investments might need to renew GICs on an annual basis. And one family member. Uh, you know, has a lot of experience in doing that and has some criteria around that. That's not something to bring to the family for a fulsome discussion.

But if there's a decision that's to be made that is non routine, it's a one off, it hasn't been made before, the family hasn't dealt with that kind of a decision. Before or if it has long term impact, then those are the decisions that really need to be given a lot more thought and there needs to be a lot more ground rules and a lot more understanding and a better process.

around making those decisions. So, we kind of, when we work with families, we divide them up. We first of all categorize those decisions and then based on those categories of decisions, we want to apply a certain, different processes.

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Leah Tolton: [00:08:05] You know in the legal context we would sometimes divide out what you're describing as categories of decisions between perhaps people who are actually owners and people who make decisions on behalf of the business who are known as the directors.

And certainly we would see in the legal context perhaps some different information would be shared among those different players at the table. And as I'm thinking about that information sharing piece, you know, one thing that I have heard that I understand Creates particular challenges in these real life situations is that transition from the situation where one group of people, the founders, whether they be parents or whoever they might be, are accustomed to receiving the information, the decisions and making quick decisions on the fly.

And then, uh, it wouldn't matter what category of decision that they were called upon to make, they would just decide. And I understand that it can be very challenging to transition the decision making, regardless of the category, from the group of founders who are used to doing things quickly and independently.

to a group that may be broader, that may include other family members, may include even some members in the management. Can you speak a bit to any challenges that you might have seen in that kind of situation?

Lynne Fisher: [00:09:16] Yes. So, I would say I have one right now that, that is a challenge. And the challenge is that the parents have made the decision because they were the founders, the business, you know, they've made the decisions for the last 40 years since the beginning.

And now family members are coming into ownership and they're also in management roles. And unfortunately, they've always depended on one of the parents, both in the family and in the business to mediate. So, mom or dad? IE, the president or the vice president, regardless of the situation there, there has been someone to make that final call.

So ultimately it becomes kind of an autocratic decision. However, now, um, they need to transition into a way of making decisions together because the parents are wanting to retire because. They're now, um, you know, they're now divesting a portion of their ownership and there needs to be a better way, a, a more fulsome, collaborative way of, of making those decisions.

So it's not easy. I mean, it's difficult and it is a transition period and it requires structure. And it requires everyone to be on board with how the decisions are going to be made well before the decisions come up in conversation.

Leah Tolton: [00:10:51] So when you talk about things like structure, are you talking about things like who gets to have input?

Are you talking about things like who gets to vote? Are you talking about whose vote must be counted in order for the decision to go ahead? Is that what you're talking about when you refer to structure or is there more to it than that?

Lynne Fisher: [00:11:09] I think there's who and how. So there's who has input into the decision.

Who is consulted maybe on the decision who has final input into the decision to who gets just Communication about the decision. So there's the who piece but there's also how how will you know? What what is the what are the steps that the family will go through in order to? Come to a final outcome. So the steps might be everybody really needs to understand The decision, for example, and even if there's a family member that may not have a final say on the decision, if it's going to impact them long term, there should be at least consultation, right, right.

And so there's consultation, there's communication, and, um, that the process might be getting back to what I was starting earlier. The process might be, let's have real clarity around what this decision is. and how it's going to impact the family long term, and how it's going to impact the business. Long term.

So once we understand the decision, there needs to be a way for people to ask questions about it. There needs to be time so that people can do their own research, so that they can, you know, they can ask the right questions. They can really be comfortable in the background and the implications of the decision.

And then, you know, there's, there's a point at which certain people have the opportunity to. I don't want to use the vote, vote or the word vote, but because that's a legal term and, and sometimes these decisions don't require a vote per se, they just require maybe consensus or they require some way of coming to an outcome together.

And so once people understand, once people are clear about the kind, the category of decision that needs to be made, Sometimes it's as much as easy as saying, okay, well, Leah will make this decision. She's the best person to make it. She has all the right background. We trust that she's going to make this decision in the right way.

She has, you know, she has our, our authority to make this decision. Otherwise, it might be one where they want, where the family wants everybody to be involved because... It's a long term decision that is going to impact the family and impact the business over a long period of time.

Leah Tolton: [00:13:48] This sounds a lot like a lot of the shareholder agreements I have prepared in my career, you know.

They, uh, they cover off a lot of the basic things that we as lawyers think about, the things that the law needs to cover, and you referred to the concept of votes and You know, the law extends that concept and that entitlement to directors in certain situations and to shareholders in situations. But really I have found over time that there's a great deal more complexity to the process and to the decisions and to the people that need to be involved than may necessarily be reflected in the law alone.

And so I often see that these discussions around what kind of things are things that we all get consulted about, what kind of things are things that the board will decide, what kind of things are things that dad decides. Those things actually take a lot of time and effort for people to, uh, to come to some kind of resolution about and so it's interesting to me to hear your perspective on the background effort and inputs that are needed in order to come to those kinds of agreements about what the rules of engagement look like going forward.That would inform my agreements. Now, you touched on an interesting point, and I don't often see this in agreements, but I'd like you to give me a little bit more information about this. You talked about consensus, and I, I often hear family members say that, oh, we want to decide by consensus, we don't want to use this concept of vote.

And, and I understand. Why a family might want to avoid a show of hands or something that creates an adversarial situation. Absolutely. But when people say that they want to determine things by consensus, are you able to describe what that often means? Does that mean the same thing to all people? What is, what does consensus mean to you and what does it often mean to other people?

Do they know? I've asked you about six questions there. Maybe we should try again.

Lynne Fisher: [00:15:42] No, no, no. That's perfect. Because you know what? Yeah. That is the question. Yeah. That's the question. What does consensus mean to you? That's the question to the family. Yeah. And in, uh, family meetings that I've been involved with and have facilitated, consensus can mean everything from, we have to agree on everything up to a certain dollar amount and then dad gets to decide that's consensus for them.

Another definition of consensus that I have. Uh, scene is we all have to be okay to leave the room, even though we're not all in full agreement with the decision, we have to be okay to leave the room and say that we have come to a decision and we'll stand by that decision. As a family, and so everyone sort of can get on this, is equally dissatisfied, right?

That, that's the old, the old term. If everyone's equally dissatisfied, then we've got, we've got the deal. And for some families, consensus actually is a version of a vote between mom and dad, right? So, and how they arrive at it is different too. And I think achieving consensus, uh, needs to have more structure behind it.

If the family doesn't have as much experience in working with each other, then if a family is already a very trusting family that has already, um, made a lot of decisions together, maybe has worked together for a large number of years, and sort of has those foundational family values, as a family first.

that allow them to trust one another and be okay with not having their way specifically.

Leah Tolton: [00:17:28] Is there an element here also of people understanding what their roles are and being clear on what their responsibilities are as well? You know, what, what they must do in order to ensure that their family members.

Participating in whatever role are going to be comfortable with that decision. I'm referring back to your comment about structure, and I'm referring back to your comment about having processes to make decisions. Is there an element there of people in that process understanding what they're supposed to do?

So that their role is clear and so that when the time comes for them to participate or contribute to a big decision that they know what they're supposed to do and by extension an element of trust among the rest of the people around the table. That that person has done what they're supposed to do and therefore they have some faith in the decision that the family has made.

Lynne Fisher: [00:18:26] I think absolutely. So, for example, if there is a family member who is also employed in the business and their role has something to do directly with the decision to be made, then understanding their contribution and, and being prepared. To educate the family from their role as a, as a, an employee of the business would be really important.

For example, there's a big marketing decision to be made. Mm hmm. Um, there's a daughter or son in the business who is an employee of the, the business and is also a, uh, vice president of marketing. They should, if there's a, a major decision to be made. For the family and not everyone in the family is also in the business.

I think that, you know, that marketing person has a responsibility to educate the rest of the family, particularly those who are maybe not in the family business as to what the stakes are and the implications of the various different decisions. So I think there are various different roles that need to take place in the, in family decision making that consider the place that the family members have in the business, particularly As we relate family members who are in the business versus family members who are not.

Leah Tolton: [00:19:54] If a family or um, the participants in a business can have some agreement about what information they need to make a decision and how they make a decision, that creates trust. And the type of information they need in order to make those decisions will depend on the category of decision. And Sometimes the decision can be made by people who aren't necessarily participants in the business by communicating with them the information they require or consulting with them.

What happens if All of those steps have been taken, those processes have been employed. Everyone has attempted to do their part and they still can't come to a decision. What happens when a conflict arises that can't be resolved?

Lynne Fisher: [00:20:38] Yeah, we have to have that, we still have to have a process. Right. Every family may be different, but it may involve arbitration.

Mm hmm. Where they're going out to a professional arbitrator or maybe a, um, a trusted If they have a board of directors, those kinds of things make those, uh, decisions quite easy because there's legal implications. But if there's no formal... And what I would say is a, a, a formal fiduciary board of directors, and there is an advisory board, the advisory board might be brought in to help make a decision like that, you know, and I think that if they absolutely can't make a decision after that, maybe they end up with you.

Leah Tolton: [00:21:28] I'd love to see them, but I'd love to see them earlier than that. Mm hmm. You know, as I, as I hear your comments here, I, I... Get the very strong feeling that the business and the family will benefit greatly from having applied some planning or some thought or some consideration to these. before the issue arises.

This is what you said at the beginning. And I see that there would be real benefit in terms of business stability to having these kinds of things sorted out before a big decision had to be made. You know, certainly before the dispute arises, you know, we can work with people to come up with. Bespoke arrangements and agreements that would cover off all of the things you've been talking about.

You know, what category of decision needs to be made by what people. What information is communicated. How people are consulted. All of those things can be considered. But certainly I think that if they have to come see me as a result of a conflict, probably things have gone too far for us to come to the kind of positive outcome that we would hope for.

Lynne Fisher: [00:22:30] And so investing the time in that structure, policies, philosophies, documenting those times, those understandings, is time very well spent. And having a way to practice, make small decisions together, so that when the big ones come along, there's a way forward. There's some trust that's been built, there's a way forward, there's things that they can do to come to a resolution that they wouldn't otherwise have if they had not had that experience.

Leah Tolton: [00:23:09] And so, in a perfect world, if everyone took our advice and they thought of these things in advance, what do you think would be the ripple effects for, not just the family, but for the business and everyone involved in the business?

Lynne Fisher: [00:23:24] You know, I think it would be huge. I think that what would, one of the outcomes would be what you've just said. It would be the... It would be the longer term stability of the businesses. It would be the longer term stabilities of family wealth because not every family has a business, not every business family has a business.

There's lots of business families that have had a liquidation event and now they have wealth. And often they have, they, they put that wealth into something like a family trust where family members are managing that together. In some way, and so the long term stability that can result from having those structures in place can extend way beyond the business and into the community because those families, often those families are the same ones that are setting up family foundations and they're, you know, they're, they're investing in other businesses and they're, they're doing great things.

With their wealth that make our communities better. And, um, those are some of the really great outcomes that I have seen with families that have some of these pieces in place. I'm going to mention one because it's very public and it's the Richardson family out of Winnipeg. Mm hmm. And we all know those stories and how many generations, I think the first Richardson was back in 1876.

Mm hmm. Or something like that. Leah, the airport is named after that family. Right. In Winnipeg. Right. And, um, you know, they still have family, they have family council meetings quarterly And they have dozens of family members that have benefited from the wealth that has that has been built by that family over generations now.

And it spilled over completely into all of Canada. Think of the impact that that's had. Just because somebody decided that it was important enough to put some of those pieces in place early. When things weren't going wrong, when things were going right.

Leah Tolton: [00:25:32] Right. That is a great example. And I think that's a really good place for us to leave this discussion.

I really thank you for your insight and your comments here today, Lynn. It's been really terrific talking to you. And thank you so much for taking the time and for offering your wisdom and your insights to our audience.

Lynne Fisher: [00:25:49] Truly a pleasure, Leah. Thank you.

Leah Tolton: [00:25:53] 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 are facing in your family enterprise. Take care. I'll catch you in our next episode.