When he reached adulthood, the Chicago entrepreneur threw himself into building an auto and computer parts business in the Midwest that would soon count Ford and General Motors among its customers. Liautaud proudly told his four children that they would be the beneficiaries of all his hard work and success. “They loved, in later years, how I smelled of plastic when I came home for dinner,” he remembers. “They loved my business phone calls. They loved the publicity I got for the breakthroughs we made.”

One of Liautaud’s sons, Jimmy John, also of Chicago and a successful entrepreneur in his own right, says he and his three siblings saw their father as a hero. “I think that made him feel good about being gone, and it made us cheer him, and say ‘Dad is like a superstar.’ ” Jimmy John believed his father had a place for him in the family business. “I didn’t think about what I needed to do, because he had it all figured out for us. I believed this from the time I remember.”

Here their stories diverge. Jimmy John says his father promised him a leadership position in the business when he turned 30. “I was supposed to be taking over everything. I thought I was getting the keys to the kingdom, but when 30 came, I didn’t even get a phone call.”

TOP VIEW For wealth creators, ceding control to future generations and transitioning into a new, less authoritative role in the family is a difficult process. The prerequisite for success is trust in the competence of the children, and enough self-esteem to be able to distance ourselves from the most tangible symbol of our success: our family business.

Liautaud, meanwhile, says he does not remember promising the business to any of his children and, in fact, despite his own observations of dysfunctional family business handovers as a child, he did not make any plans of his own to pass his legacy on to the next generation. “I never wanted my children in my business because they, and everyone else, would be comparing their performance to mine,” he explains.

The chasm of expectations in the Liautaud family resulted in feelings of bitterness and frustration on all sides. Such feelings are all too common in families where the first affluent generation—led by the individual who actually built the family fortune—must cede control of hard-won, life-defining assets to future generations. This process involves redefining family and professional roles, and can be emotionally trying for those accustomed to being in charge of both family and business. It can be equally stressful for members of the second generation, whose opinions, needs and goals may be overlooked during the succession planning process.

Kid Pro Quo
Jay Hughes, an attorney and family consultant based in Aspen and author of the book, Family Wealth: Keeping It in the Family, says that many succession plans fail because the first generation tries to impose its dreams on the second, setting up a cycle of dysfunction and eventual collapse. “The families that fail fast are the ones where the first generation says to the second, ‘You’ll do this for us, and then we’ll do something for you,’ ” he says. “It’s better to ask, ‘What is your dream, and how can the family enhance it?’ ”

Because of the emotional pressures and anxieties that each generation feels when approaching issues of succession, the appropriate questions that each generation should bring to the process often go unasked. Leslie Mayer, a psychologist and CEO of Mayer Leadership Group in Wayne, Pa., who works with affluent families on leadership issues as a senior fellow at the Wharton Global Family Alliance, says that the first generation of wealth creators almost always harbors doubts about the second generation’s competence. “They wonder if their heirs are capable of successfully leading the family,” she says. “They also wonder if, as parents, they have done enough to prepare their children to carry on the family dynasty.”

When the dynasty includes a family business, the succession process can become further complicated. According to Mayer, the concurrent goals of doing what is best for a family business and what is best for the second generation often diverge. In Jim Liautaud’s case, the entrepreneur assumed he was acting in the best interests of both his family and his business when he crafted a succession plan that did not offer his children an opportunity to follow in his footsteps. “Statistics prove the chances of the chosen son—or any son—of an aggressive, successful entrepreneur is not likely to match his talents,” Liautaud says. “I told [my children] they could hire pros to run the businesses—or sell them and use the money to invest on their own.”

Confidence Games
Liautaud made this fateful decision—which would ultimately lead to considerable family discord—despite knowing that his son Jimmy John had potential. “I did recognize early that he was a born leader, very bright and very driven to do the right thing since he was 2 or 3,” Liautaud admits. “He lucked out in the DNA pool.”

The first generation of wealth creators almost always harbors doubts about the second generation’s competence.

Despite his son’s obvious potential, Liautaud chose to ignore a succession option that might have brought Jimmy John and his other children great fulfillment. Indeed, Jimmy John’s disappointment over his father’s succession plans fueled an “I’ll show him” attitude. Armed with a loan of $23,871 from his father (which he paid back within three years), he started his own business while still in college. At age 40, Jimmy John is a huge success. His eponymous sandwich shop empire has 300 locations.

As Liautaud’s children became older and professionally successful, he saw them in a different light. “When I reached 60, I had changed my mind,” he says. “My children became adults and experienced pros who really wanted to run the businesses.”

Liautaud eventually sold his first business to his children, and then retreated. He asked his oldest son, Greg, to run the company, and assigned all four children equal ownership shares. He gave Jimmy John a 51 percent voting control, based on his strengths as an entrepreneur. “I play no role at all, own no equity and am not on their board, nor am I privy to the board detail,” Jim says. Jimmy John says the children work well together.

Despite some residual communication issues in the Liautaud family, both father and son feel a mutual respect and love for each other. The communication difficulties are being unraveled with the help of a family consultant. According to Liautaud, distancing himself from his children as they run the business has provided some relief for the entire family.

Revered Bystanders
Once a succession plan is in place and the entrepreneur begins the transition to his new, less authoritative role, other deeply personal issues often come to the fore. He may worry about how the transition will affect his marriage, whether he has prepared his children for their new responsibilities and how he will find productive ways to use his time and energy. A new role as a “revered bystander” often frustrates ambitious, type-A personalities who see their own business success as a validation of their existence.

Such was the case with Steve, an entrepreneur in Florida who built two successful businesses. He remembers a defining moment of his “retirement” at age 41. Steve stepped back from his day-to-day life running a business when his twin children were in the first grade. Without a 40-plus-hour work week to anchor his schedule, he felt lost. “The weekend would come and I would wonder how I could enjoy it when I didn’t work all week,” he says. “What was so special about Friday night?”

Many first generation retirees report feeling rudderless and without purpose: “Without my business, what is so special about me?” Hughes says the key to maintaining one’s post-retirement identity and esteem is to view succession as “an asset allocation decision, rather than a sacred trust.” By doing so, the business founder can make decisions without as much emotional baggage, and be better able to let go of the business and move on successfully to the next phase of his or her life.

I never wanted my children in my business because they, and everyone else, would be comparing their performance to mine.”

Steve believed he embraced this philosophy, but withdrawing from the business was harder than he expected. Although he did not see his business as part of his family legacy, the loss of the tangible evidence of his drive and his success required a new way of thinking. “I had always looked at the business more as a tool to create a liquidity event,” he says. “I wasn’t so attached to it that I couldn’t sell it.”

Once the business was gone, however, not only did he have to fill his time, but he worried about instilling a work ethic in his children when he did not have a job himself. “It was a huge challenge to find meaning and fulfillment in nonfinancial activities,” he says.

Though Steve says he realized early in his career that he wanted the business to work for him, rather than the other way around, the transition to a life of leisure was difficult. “It was about a year’s transition,” he says, “and I didn’t enjoy it the way I could have because there was some anxiety.”

Saved from Themselves
Now that the twins are young adults and are preparing to enter the work world, his apprehension has shifted to issues of transferring his fortune. “It’s the classic case of, ‘If I give my kids too much money, am I going to ruin them,’ and ‘How much is too much?’ ” Steve has overcome this particular fear by informing his children that he and his wife are bequeathing much of their wealth to a family foundation. His children have been involved in setting up the foundation, and in the decisions about how to allocate the money.

The couple have also introduced their children to budgets—even requiring them to account for their spending each week while they were in college, and for any withdrawals they might wish to make from their modest trust funds. They also required the children to review their trusts and keep up with the investments, and to take a role in vital decisions of the family foundation. Because of this, his daughter, Tina, says she and her brother are prepared to make their own marks in the world. “If I receive an inheritance, I don’t think I’ll live off it,” she says. “I’d like to start my own business, ideally.”

In preparing their children to be financially responsible heirs who would eventually control their own assets and lives, Steve and his wife enabled both generations to avoid some of the successional pitfalls and intergenerational mistrust that befell the Liautauds. In the end, Hughes says, the issues the first generation face center on trust. “The first generation must find a way to trust the second, and allow it to continue the family legacy by being productive and valued by all family members. If the first generation creates a nurturing environment, then a family’s financial capital will continue to grow.”

Illustration by Jonathan Barkat.

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