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Inheriting the company? Know this first

Family run business succession planning
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The public often view family-owned firms as more trustworthy than their non family-owned peers, but this faith can wane when the firm passes from the founder's hands to the next generation.

Entrepreneurs — especially those with a rags-to-riches story — are often admired for their drive, ambition and strong personality, leaving the next generation with a hard act to follow.

To boost faith in successors and the continuity that they will provide, some firms publicly state their "family" values.

"The word family often comes with 'values,' so therefore it is very important for the firm to articulate their values as a family. This is part of the success and longevity of the business," said Maya Prabhu, a managing director at Coutts Institute, told CNBC in a 2014 interview.

Wates Group — one the U.K.'s largest construction companies — is a family-owned business that is very overt and clear about its values and how it makes decisions, Prabhu said. The company, which has been wholly owned by the Wates family since its inception in 1897, publishes details about how family members join the business and has a very strong program of philanthropy.

Other firms explicitly state that family members must live modestly and eschew trappings like flashy cars.

"Some families feel that is very important. Many first generations are concerned that the next generation should not be profligate spenders," Prabhu said.

Those are just some ways that companies are battling what can be a uphill public perception battle.

"Society, in the way that that it respects a creator of business, definitely has suspicions of those they regard as having been born with a silver spoon in their mouth," Prabhu said.

Seventy percent of company founders were judged "highly trusted" to do "what is right" in an annual survey by public relations firm Edelman. However, only 56 percent of the 12,375 respondent across 12 countries held the same view for next generation leaders.

"Society, in the way that that it respects a creator of business, definitely has suspicions of those they regard as having been born with a silver spoon in their mouth." -Maya Prabhu, Managing director, Coutts Institute

"All wealth is not seen as equal, and a significant trust gap currently exists among both general public's and informed public's regarding individuals' acquisition of wealth," said Edelman in its "Trust barometer" report based on the survey.

Those who inherited rather than generated wealth performed poorly across a range of trust indicators in the survey. Heirs were viewed as less philanthropic, less transparent and less entrepreneurial, as well as less likely to be a force for good in business or society.

"Often they have had quite a different life experience, if it (the family business) has been a successful venture. They probably haven't had to struggle and scrape as much as the entrepreneur has had to and the next generation may not have the same commitment and drive," said Nicholas Moody, editorial director at Campden Wealth, in an interview in February.

Although firms can flounder in the hands of the second generation, success stories are out there — one being that of Japanese retailer Fast Retailing, in the opinion of Moody.

"There (at Fast Retailing, owner of Uniqlo), it is that second generation who really built on the establishment of the business. Tadashi Yanai has grown his father's Ube City roadside tailor shop into one of the world's largest retailers," he said.