Donald's Trump's business interests need to change hands in a short amount of time, which may pose problems for the president-elect.
By Beatrice Wolper
Setting aside politics and conflicts, the process of quickly transferring President-elect Trump's interests to his children will be difficult at best-especially without the "journey of succession" that needs to occur when a family business transitions to the next generation.
Successfully transferring ownership of a family business is often referred to as a "journey" since it takes time and many unexpected obstacles will likely be encountered along the way. The fact is that the last thing Trump wants is to have the family business enterprise fail.
Although his intent may be the "immediate transfer" of all family business interests to his children, immediate and complete transfer of family business interests usually occurs at death. An immediate transfer would mean that the next generation is faced with the complexities of running a family business without truly learning how to run it.
The lessons of successful family business succession begin with the knowledge that it takes time and effort to properly transfer a family business from one generation to the next.
The transfer of ownership is the simplest part of succession. It can be as easy as signing a piece of paper. However, the journey of succession includes not only succession of ownership, but leadership, management, authority, relationship and knowledge. Without these critical aspects, only 30 percent of family businesses survive to the second generation and only 3 percent survive to the fourth generation.
For example, one essential factor is the succession of authority. Vendors, employees, and customers all need to know and respect the next owner before they are comfortable transacting business with him or her. They believe and trust the operating owner (in this case, Donald Trump) and they must learn to trust the next owner. If not, when a question arises, the vendors, employees and customers will contact the person they trust and question the new owner's decisions.
Over the years, we have seen family business owners sell, retire and move out of state. Yet, when a question arises, the vendor, employee or customer would still call the "retired" owner. If this previous owner answers business-related questions, there is no succession of authority. The journey of succession must include earning respect for the new leader and decision maker.
Another important factor is the succession of relationships. Companies have relationships with bankers, accountants, attorneys and other key business partners. When an owner departs suddenly, those relationships can become "uncomfortable."
Because owners often sign notes as a personal guarantor for their family businesses, banks do not usually release them from their personal guaranties without substituting equivalent collateral. If the next generation does not have sufficient collateral, the banker either keeps the original personal guarantee, or if there is a change-of-control restriction in the loan documents (and most agreements have such a provision), the loan would be called.
It takes time for bankers to become comfortable with the next generation's management style, and therefore, we recommend starting the relationship transfer early in the journey of succession.
As for Trump, the succession of knowledge may take time. Only in the case of death is it impossible to ask a previous owner what to do or how to do it.
In our experience, complete separation is not a reality when the previous owner is available. Holiday dinners and family gatherings will occur; topics of interest will be discussed; what is happening with the family enterprise will come up. And, advice will be given. It's human nature.
For the Trumps or any family, transitioning the business is simply marked by a legal event. The real transition begins long before-and continues well after.
Beatrice Wolper is the president of Emens & Wolper Law Firm Co. and co-founder of the Conway Center for Family Business.