When a lawyer steps in: Leah Tolton and family businesses

Leah Tolton, a corporate lawyer and partner with Bennett Jones in Edmonton, has spent more than three decades offering her legal expertise to her clients, many of them family businesses, and is the only member of her 500+ legal firm with the Family Enterprise Advisor (FEA) designation.

Tolton’s work with ultra-high-net-worth families and their companies includes matters related to corporate governance, succession planning, mergers and acquisitions and the sale of the business. As such, she often works in tandem with other advisors to these families.

In her practice, she has encountered many challenging situations, both inside the operations of the business and the family itself. These can include structuring agreements around next-generation involvement in business operations and ownership and preventing conflict through legal structures.

This often entails family and advisors taking a bigger-picture view and treating the business, the family and the family office, if it exists, as an ecosystem.

What approach is necessary for advisors who work with enterprising families?

The siloed approach is the typical approach. I think most professionals adopt that. Really, the complexity of problems usually require a broader and more nuanced approach. Therefore, it is to everyone’s benefit to cooperate.

I think it’s true of pretty much anyone who is professionally trained, that they are really skilled at seeing problems from their window. They look at facts and they see the problem the way that they are trained to solve it.

What I think is becoming obvious – and will become more apparent as time unfolds and there’s such a massive transition of wealth and of business interests from the baby boomers to their next-generation inheritors – is that really the problems are usually more complex than one advisor can handle or address, given their perspective and their training.

Given the complexity of problems that many family enterprises face, there is real benefit, I think, to the advisors being able to certainly understand the kinds of issues that typically arise in these structures, to have an understanding of the advice that each contributor might make to the family office or to the enterprise.

I think that the advice that family enterprises or family offices receive when their advisors understand what each of them is looking for and understand what each of their areas of expertise affects, then you can cooperate and coordinate your efforts to come up with suggestions and solutions that can be really powerful for clients.

You create documents and agreements that offer structure to enterprising families. What happens when some family members do not want to participate in the business?

What often happens in that transition is that mom and dad have been involved as owners and as people who work in the business. What can be really important for people to get an understanding of, that I can assist them with, is that you can break the link between ownership and working in the business.

You don’t necessarily have to work in the business to be an owner. You don’t necessarily have to be an owner to work in the business.

When people think about that, then it helps to facilitate these discussions about what happens if someone doesn’t want to work in the business.

Does that mean they don’t want to be there every day and they don’t want to have that requirement to be associated with ownership? Are the people who are working there every day prepared to allow someone to be an owner who’s not contributing? Maybe that’s okay. Maybe if that person is a shareholder who’s looking for a return on an investment because their capital is still in there, maybe they’ll stick around.

That’s an important concept for people to think about and decide what’s right for their family. Are those two concepts, owner and working in the business, linked or not? That can help inform how the agreements can work going forward.

At what point do you work with advisors, whether dealing with liquidating assets for lifestyle requirements, or business acquisitions, or other financial matters?

It depends. I have clients that I’ve acted for, from the time that they were starting out, looking for growth capital, looking to get established, and going through transitions like that. For those people, I’ve been with them from the get-go.

I helped them put it together in the first place. I’ve helped them make it bigger. I’ve helped them add on to it. I’ve helped them to acquire competitors, or I’ve helped them to sell. Sometimes I’m involved from the very beginning all the way through.

I can also get involved [later], usually at a transition point when things become more complicated. There are more people at the table or not everyone has the same interest at the table.

Once we’re at a stage where we’re getting beyond the original structure and now we need to think about things again with a more nuanced approach, then it’s not unusual that I would be consulted.

When it comes to succession, what can make these legal agreements complicated? Are there ways to prepare for various scenarios?

There are a lot of family dynamics that can factor in when you get to the concept of fair versus equal.

It’s very often the parents who want to treat their children equally, and they have an idea about what that looks like. It’s very often a mathematical calculation: “You will each get this equal share,” and then they’re done.

Where problems can arise is when that is perceived to be unfair.

For example, kids who work in the business and kids who don’t. I just had an example come to my attention last week of a blended family where that was an issue, where the older children from dad’s first marriage had actually been involved in the business, but mom and dad decided everything was going to be handled equally – some share was going to the half brother or sister.

Unprepared heirs are an issue in many succession scenarios, whether relating to business or wealth-management decisions. How can this be addressed ahead of time?

I see this arise a lot and there are a lot of dynamics that go into this. Mom and dad may think their kids aren’t ready, but their kids are maybe more able to take on these concepts than mom and dad may think.

Kids may not have practical knowledge or may not have knowledge about how the business runs. They may not have the connections to keep the business running like mom and dad do. It takes a long time to build up those relationship connections. There are ways around that, too.

Ideally, if people think about this in advance and they’re frank about what their interests are and what role they want to play, then you can put a plan into place that might include, for example, some really concrete instructions and training on things like financial literacy and investment management and tax strategies.

Those are the nuts and bolts of things that you really need to understand how to manage if you’re an inheritor of wealth or a manager of wealth. You’re going to have to steward some resources there, and those are really building blocks that you can assist with that.

Responses have been lightly edited for clarity and length.

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