Proper governance can help businesses transition to the next generation.Getty Images
Kathy Cheng represents the third generation of her family to run a textiles business. Her father, Chak Wai Cheng, moved to Canada in 1978, starting a small sewing facility. He was following in the footsteps of his own father, who was in textiles in Hong Kong.
Chak Wai Cheng’s company became a full-service apparel manufacturer called Wing Son, which evolved into WS & Co., and it serviced a number of global retail and designer brands.
Despite that success, Ms. Cheng initially wanted to say ‘no’ when her father asked if she wanted to partner with him. She knew the business meant a lot to her family, and she was concerned there would be immense pressure on her, especially as an only child.
Running a business consumes all of your “attention, time and energy”, she said at The Globe and Mail’s “succession planning for business owners” webcast on June 4, 2024. The event, part of a “lifecycle of a business series,” examined common issues related to crafting a succession plan.
The Conference Board of Canada reports that 63.1 per cent of private-sector firms in Canada are family-owned, generating almost half of Canada’s real GDP in that sector.
With a rising number of Canadians approaching retirement age, nearly eight in 10 owners of family businesses are developing succession plans or expecting to transition to the next generation in the near future, according to a KPMG survey.
This intertwined transition can be challenging.
“We all know how complex a family is. We understand how messy that can get, but businesses are very complex groups of people [too],” said Francesco Barbera, founding academic director of the Family Business Institute, and an associate professor of Entrepreneurship and Strategy at the Ted Rogers School of Management at Toronto Metropolitan University.
Keeping a business in the family is a source of pride and strength for many, he said, adding that maintaining family harmony is integral during this transition.
So is having a vision for how to grow. Ms. Cheng, now president of WS & Co., wanted to continue the family legacy. She explored new revenue streams for the factory, and she launched Redwood Classics Apparel, which is WS & Co.’s successful in-stock apparel line.
Succession planning and managing family issues are different for everyone. Roger Greenberg, executive chairman of the board of real-estate company The Minto Group, said his family has had shareholders’ agreements in place since 2004. “It has helped guide us in our relationships.”
The Minto Group was founded by four brothers in 1955. Roger, the son of one of those brothers, was the company’s president and CEO from 1991 to 2013. When he decided to step down as CEO, none of his siblings wanted to take over the job. They ended up hiring a non-family member to step in as CEO.
Sound governance helps ensure smooth succession planning. “It’s all about communication, building trust and understanding,” said Greg Moore, partner at Richter, an integrated business advisory and family office firm that sponsored the Globe’s webcast.
He referred to using a three-circle model to help individuals understand where they sit within a family enterprise. The circles represent ownership, family and business, and each family member occupies one of the several sections created in the overlapping circles.
This model can clarify how each person in a family business relates to the other, and how family dynamics can show up in business decisions.
Naim Ali, CEO of SM2 Capital Partners, said that when his father saw the three-circle model, “a light bulb went off.” The elder Ali co-founded the business alongside Naim’s uncle. He tasked his son with implementing a governance system to further decision-making and transparency, and then he stepped back from the company.
“Although people have slammed their fists on the boardroom table and walked out, because we have governance they do come back,” Mr. Ali said.
For Ms. Cheng, once reluctant to take over the family business, the succession plan worked out. She said the best gift she ever received from her daughter is a self-portrait of her as a boss, with factory equipment in the background. Her children, she added, will start getting interested in the family business “before you know it.”