4. The Roots of Poor Partnership Planning
The simplest explanation for why people who are going to become partners fail to plan adequately is a lack of understanding of what goes into creating and maintaining successful partnerships. There has been a dearth of research or even anecdotal information on the subject. Consequently, few people are cognizant of the issues they need to deal with. Not even business schools teach people about the issues that are most likely to bring partners to their collective knees. Many people are under the impression that if they have the appropriate legal documentation in place (shareholders or partnership agreement, buy-sell agreement, operating agreement, etc.), then they have done everything they need to do to structure their partnership. Though these documents are necessary, they serve a limited, legal purpose and unfortunately give people a false sense of security that they have sufficiently prepared themselves for the rigors of being partners.
Planning is short-circuited in many cases because some of the issues that require discussion and negotiation are highly sensitive. Even people who are reasonably skilled communicators stumble when talking about things like power-sharing, authority, decisionmaking, money, perks, personalities, work ethics and values. This sensitivity only escalates when family relationships are involved.
In many families, the need for future partners to thoroughly plan their partnership is obscured by the fact that the successors have seemingly been functioning like partners, sometimes for years. What people in these circumstances have trouble understanding is how very different it is to actually be partners and have no one “higher up” to turn to when an impasse is encountered. This is especially true when the parent has been relatively uninvolved. Sometimes the mere fact that a parent is still alive can keep partners from confronting one another. That can be positive, but the presence of parents can also cause offspring to forgo discussing and working through their issues in a way that they must if they want to be effective as a team.
Parents, too, bear some of the responsibility for poor planning on the part of their successors. Many parents imagine it is their job to set up the partnership team for the next generation, but partnership planning can only be successful when it is lead by the prospective partners without the parents’ input. The dynamics are very different when adult children work through their differences among themselves, even with mediators, than when they are receiving input, or being monitored by parents. It’s easy for parents who have been in charge for so long and who have had responsibility for defining their children’s roles in the business to believe it is also their responsibility to determine how their children will work as partners after they pass the baton of leadership and ownership to them. We have also seen numerous instances where adult children are trying to work out their future relationship among themselves and one or more of the children try to involve the parents in the hope that the parents will intercede and tell them how they should work together after the parents are gone. The process can make parents and grown children anxious. This kind of control on the part of the parents, and dependence on the part of adult children, is not easy to grow out of but that is exactly what families in these circumstances need to do if they want the next generation to be successful on their own without their parents adjudicating their relationship. Continue…
1. Introduction
2. Creating Partnerships: Benefits and Risks of Passing Key Assets to More Than One Person
3. Why Is Having Sibling, or Other, Partners So Risky?
4. The Roots of Poor Partnership Planning
5. Lowering Risk through Effective Planning: The Partnership Charter
6. The Role of a Partnership Charter in Succession and Estate Planning
