If you didn’t stumble into broking by serendipitous accident, chances are almost certain that you followed in the footsteps of family member.

The industry remains a bastion of bloodline dynasties but the business succession issues facing family businesses are often fraught, says Craig West, an adviser with exit planning firm Succession Plus.

He says that any family in business together should have a succession plan in place as soon as possible. “Every single business I’ve ever worked in ends up wishing they had started earlier.”

West says families should begin with an end goal in mind. “If you want to end up in a position where your son runs the business and you need to work there but you still get paid or you still get dividends, then you have to start with that plan in mind,” he says.

With insurance broking business values skyrocketing in recent years, families can face equity issues when children not involved in the business miss out on its value.

But how do you determine which family members get to share in your most valuable asset?

West describes a recent case where a business owner was approaching retirement and wanted to pass on his business to his son who had worked alongside him since leaving school 30 years ago – but also has two daughters who don’t work in the business. “The son knows the business, knows how to run it and dad is quite happy to hand it to him,” West says.

“The problem is the business is worth far more than all their other assets put together. How do you look after the girls? Maybe they get the house or some cash or some shares, but it doesn’t equate to the same amount of money that the business is worth, and borrowing against the business puts huge pressure on the son, who hopes his own kids will work there too.”

Solutions often involve agreements where descendants who don’t work in the business are bequeathed other assets on their parent’s death – but these can be fraught, he adds. “This can create some very difficult dynamics like jealousy, and feelings of favouritism, where emotions and family values get caught up in business transactions,” he says.

Many brokers resolve this by introducing employee share plans, he says, allowing them to sell down part of the equity of the business to the employees, release some cash and get some equity that can be used to share with family members.

Susan Dix, a family business adviser with BDO, says family succession plans have some key questions to focus on. “It’s all about who’s the right person
to take over the next generation,” she says. “You need to think about what pre-qualification they should have, whether they should get equity in the business and how should they be employed; the issues are fairly universal.”

Family succession should be an ongoing business matter similar (or part of) a strategic business plan with a three- to five-year horizon, she says.

The Nevilles

Bronte and Russell Neville.

The Nevilles

Queensland’s Russell Neville has three daughters but none showed any interest in insurance, so by 2009, with no succession plan in place, he and his two partners sold their broking business to Marsh.

However, soon after, his daughter Bronte switched careers, and began working in insurance. “She enjoyed it immensely and did very well in her studies, winning awards,” he says.
After serving out his contract with Marsh, Russell decided to set up a new business, Queenscorp, with a previous partner and his daughter that could blossom into something that she and other shareholders could grow and take into the future.

Since then, his nephew – about to finish a decade of Army service – has shown interest in joining the family firm. “Now two members of my family will come forward, under the guidance of the other partner here, which is very rewarding,” Russell says.

Russell has a plan in place to sell down his shares in the future. “I plan to take a step back from being the leader, while still being available as a consultant to the firm and to our major clients and to work in a mentoring role for the younger people,” he says.

His other two daughters are unlikely to enter the business; one is a university lecturer in nursing and the other runs her own business in an unrelated field, he says; but there are no concerns about sharing the business asset.

“I firmly believe that the rewards have got to go to the people who are working in the business and growing it,” he says, adding that having someone holding shares without involvement in the business can lead to resentment on both sides and the potential for decisions to be made that conflict with business priorities.

I’m more demanding of her than of other people because she has to perform at a high standard to earn the right to continue.

Russell says that Bronte proved herself in other insurance companies – including a major international firm – before joining with him.

“The person coming through has to have the appropriate experience – and whatever we do in this business, our client’s interest has got to come first.  Just because a person is a family member, they can’t be a weak member of the team.”

He admits that he has higher expectations of his daughter than other staff. “I’m more demanding of her than of other people because she has to perform at a high standard to earn the right to continue to deliver the quality of service that this company stands for.”

The Rodericks

Marnie Roderick-Shepherd joined her parents’ brokerage straight out of high school, as did her two younger brothers, Jai and Wes Roderick. “I think we all thought it was just a way of earning some money, until we found our own careers; but 20-plus years later, both Wes and I are still in the business,” she says.

Roderick Insurance Brokers has grown to around 27 staff in the last three decades, with founder Keith Roderick currently the MD and his wife Louise Roderick the Company Secretary, both still very involved in the business.

Sadly, Jai sadly died in 2008 from leukaemia. “He would have been a really good people manager – that was the plan,” Marnie says.

Wes and Marnie each hold the role of General Manager and with the office spread over two locations, and the two holding very complementary skills, there’s no demarcation disputes.

Around five years ago, we started a training program to get some young, fresh people in.

“We have it set up so that at some point, Wes and I can take over,” Marnie says. “But at the moment, it’s more a team effort. Wes and I have been in the business for such a long time now that we know how things are done and what decisions need to be made.”

After completing her formal insurance broking qualifications, Marnie left the firm to travel in Europe. Seven months later, she was looking for insurance work in London when a vacancy opened up in the family business, so she returned to Australia.

“Ever since then, I have stuck around. We’ve grown our business, and we all get together and talk about things on a regular basis,” she says.

“Dad is a bit of a powerhouse, and runs the financial side of the business while still looking after a large portfolio, so around five years ago, we started a training
program to get some young, fresh people in,” says Marnie.

“Dad now has a broking executive assisting with his portfolio, so that he can eventually step back from that a bit.”

The senior Rodericks have started taking some extended holidays, giving their staff an opportunity to practice the succession plan. “Let me tell you, at this point we’re all very glad when they come back!” Marnie says.

With other staff ready to step into key roles, Marnie says that training is a key part of succession. “We’re all getting ready and we step up at the moment for short periods with the idea that eventually, one day, we will do it permanently.”

The Donnellys

Cara, Paul and Sean Donnelly.

The Donnellys

Paul Donnelly started his broking firm in 1988 and his son Sean joined him about 20 years ago. Sean had planned to find a carpentry apprenticeship on leaving school and came to work for Paul to earn a bit of money over summer. “He worked for me for about two years and then I kicked him out and said: ‘You need to go and work for somebody else for a couple years and get some different perspectives’,” Paul recalls.

Sean spent some time working for an underwriting agency, then for Jardine Lloyd Thompson before deciding to return to the family firm.

Paul’s daughter Cara also works in the business. She spent a number of years in hotel management, where she reached a senior executive level with Accor hotels, but when she returned to Sydney with her husband, keen to start a family, joined the family business and soon found insurance was a perfect fit for her.

“All the skills Cara learned in hotel management just fitted in perfectly with insurance broking,” Paul says.

Cara has become his obvious successor to run the firm, Paul says, and Sean takes control of administration and is happy with the succession plan.

I kicked him out and said: ‘You need to go and work for somebody else for a couple years.

Paul has two other children who don’t work in the business and this has been addressed in his succession plan.

“This has been catered for in our wills,” Paul says. “Obviously, in the event of my death and my wife’s death, the other two kids have got to be taken into consideration. There’s an allocation for them, and Sean and Cara realise that at the time, they may have to borrow some money to pay them out,” he says.

“It’s a big asset and it’s important to be fair.”