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The Shetland blog: What can family businesses learn from the Trumps?

Every month, lawyers from Harper Macleod - the biggest Scottish law firm with an office in Shetland - share their insights on issues which can affect local businesses and individuals.

Here, Chris Kerr, Partner and business lawyer at Harper Macleod, looks at the goings-on in Trump Towers and examines the importance of succession planning for family businesses.

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It was just one of many headline-grabbing elements of Donald Trump's Presidential victory, but as a lawyer with a special interest in advising family businesses it was the one that fascinated me most. How would The Trump Organization deal with the head of the business moved on?

The White House may seem a world away, but given that Mr Trump's mother was from the Hebridean island of Lewis, it's perhaps not that much of a leap.

Protocol suggested that Presidents either sell up or put their business interests into a blind trust to prevent conflicts of interest. President Trump, however, elected to pass over control to his sons. Regardless of whether this has been enough to avoid conflict between his new role and business interests, is it even a good idea in business terms? Could the business be susceptible to breaking up amid power struggles over who's 'in charge'?

Mr Trump represents the second generation of his family business, and he'll have heard the adage about families going from rags to riches then back again in three generations – indeed only around 9% survive into the third generation.

Succession planning is a major issue for any businesses and family businesses most of all. Creating a successful framework so that there can be a smooth transition of ownership and management is the Holy Grail. The solution has to maintain day-to-day operations while giving both the current generation and the next peace of mind that their hopes and aspirations are being met.

The solution must encompass the personal business of the family, not just the family business itself. Get it right and a business will survive and thrive. Get it wrong and trouble is almost guaranteed.

We worked with one family business that, over multiple generations, has raised expectations that it would simply provide for everybody, no matter how much they contributed or how well qualified they were. Seeing the potential for future problems, it introduced a family constitution which established conditions that had to be met by family members who wanted to be involved in the business.

The constitution set out clearly that no one had the right to a place at the top table by birth alone. Any family business can set up a similar arrangement, and it's something we're asked to look at more and more for our clients.

No matter what kind of business your family has, you need to be prepared for the unexpected, although an owner becoming President isn't something we've had to deal with so far!


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This article originally appeared in the Shetland Times