Succeeding Through Succession

Although Nature’s Path Foods has grown through acquisition, Arran and Ratana Stephens want the world to know: the company itself is not for sale. The founders of North America’s biggest organic breakfast and snack food maker post this message on the company website: “Arran and Ratana built this family company from the fertile, organic ground up. We haven’t ‘sold out’–and we don’t intend to.” Undaunted, prospective buyers still send Arran about one pitch per week and return every six months for a fresh rejection.

Arran Stephens is 71 and has been making plans to leave the 30-year-old Richmond company for about 15 years. He and Ratana still come to the office for a few hours every day, but three of their four children work for the company and have taken over much of the responsibility for running things on a day-to-day basis. Stephens says the children found their roles in the company through natural selection, based on their skills and passions. “We held them to a higher standard than others and expect them to work harder and more strategically,” he says. “There is no room for nepotism.”

The couple owns all the shares in the company and plan to pass them to their children. “When we go, at some point, it will go equally to the children, because we don’t want fights after we’re gone,” Stephens says.

Their succession plan is strikingly elegant compared to the squabbles and lawsuits that commonly plague other family-run businesses. Some founders’ children fight because they are left with a smaller share of equity or an outsized responsibility within the company.

Entrepreneurs are good at planning how to get into business–but not about getting out. Succession is simply not something many entrepreneurs map out, says Michelle Osry, who leads Deloitte Canada’s Family Enterprise Consulting division in Vancouver. Family dynamics can get crossed with financial decisions, creating conflict among family members. Sometimes the discussions are so tough, they don’t happen at all. “Only 20 per cent of families successfully transition the business to the second generation–either because the family does not stay intact or the business and the wealth does not stay intact.”

There are numerous options on the table for business founders planning to get out. Some, like the Stephenses, know their children will be faithful stewards of their company. But other founders’ children may lack the desire or the skills to take over. In those cases, the family could hire professional managers to run the business for them. Or they could sell some or all of the equity to other interested buyers, including company managers or employees, a competing company or a private equity firm. As Arran Stephens can attest, there is ample liquidity among private equity firms hunting for investment vehicles.

But to work out which option is best, families need to open discussion. There is help available for those who seek it. Stephens works with the Business Families Centre at UBC’s Sauder School of Business and highly recommends family business owners seek its advice. –D.H.