SUCCESSION PLANNING PROCESS
By
Teenagers are notorious for thinking they're immortal, but
they've got nothing on family business owners. More than two-thirds of
companies surveyed in a recent study of family businesses have no written
strategic plan.
"Often the CEO has a picture in his own mind of what
will happen next," says Ross Nager, head of the
research project and executive director of the
The transfer of power is a touchy subject for any
business, especially a family business. Yet family-run companies need
succession planning even more than other companies do. In a previous article we
talked about all the tensions and fears related to succession that can rob
sleep from family CEOs facing retirement. We also talked about a proven process
we have developed for guiding family business succession planning.
Facing the unknown
It's never easy to think about what happens "when I'm
not here any more." Just for openers, it paints disturbing pictures about
"how I get to not be here." Then there are all the other images of
who's here instead, and what kind of hash they're making of the company that
meant so much for so long to its founding entrepreneur.
The succession planning process takes the terror out of
imagining the future by bringing structure and order to this Pandora's Box full
of unknowns. This process is based on two main concepts:
1)
using
a team of planners to help the
entrepreneur develop an orderly succession, and
2)
using a combination of
strategic planning and conflict resolution to address the special
challenges of succession in a family business.
After all, there are only three things that can happen to
a business when it changes hands. It can be given, willed, or sold to the next
generation. It can be sold to employees or outsiders. Or it can be liquidated,
gradually or abruptly. Those are the options; if the business owner does not
make the choice, it will be made by others in less than ideal circumstances.
Succession planning, as stated in our previous article, is
a business owner's most important act of leadership once the business is
established. The leader can keep the family in control of succession by
creating planning objectives and then
accomplishing them. These objectives include:
1)
A Business Strategic Plan (business direction). Where is
the business going?
2)
A Management Succession Plan (management direction). Who will
next lead the business?
3)
An Ownership Transfer Plan (ownership/stockholder
direction). Who will next own the business, and what is the best method of
transfer?
4)
A Family Governance Plan (family direction). What, if any,
will be the family's role in the business? Who within the family will sit on
the board or otherwise help direct the business?
Family roles in the business might be stockholder, board
member and/or officer, manager, employee, landlord, or consultant. Various
family members traditionally might have played one or more of these roles, none
of them, or all of them -- and these roles can change drastically and
unexpectedly with succession if they are not planned for.
Furthermore, different roles have different
responsibilities. Family members often forget this fact when they change hats
and make decisions in new roles. Succession planning ensures that roles are
clearly identified and defined so that the family and other major stakeholders
know ahead of time exactly where family members will fit.
A process for succession planning
As the key member of the planning team, the planning
consultant starts off the process by helping the family develop objectives in
these four areas. Then other professionals are added to the team, working with
planners and the family to develop a package that will accomplish these
fundamental objectives.
The planning consultant is involved in a number of steps
in developing these objectives, in essentially the following order:
§
Fact gathering. The consultant's first task is
to assemble complete information about the business and the people involved.
§
Education. Then the consultant makes sure
all stakeholders (family members and other key players such as non-family
managers, longtime CPAs or attorneys etc.) are fully informed about everyone's
roles and the fears and tensions commonly faced in the planning process.
§
Communication. Next, the consultant conducts
private interviews with all stakeholders to define the players, determine their
expertise, and understand their personal concerns about fairness and other
issues. This is the time to air individual tensions and fears and find out what
each person wants and gets, or wants and doesn't get, in the existing business.
After these personal interviews, the consultant facilitates regular family
meetings with set agendas to enhance communication within the family and
clarify everyone's issues and objectives.
§
Determination of preliminary
objectives. This
step of the process includes a thorough business valuation to help set the
direction for business, management, and ownership.
§
Analysis. Here the consultant helps
analyze the alternatives (dispersed vs. concentrated ownership, etc.) that will
have a bearing on the ultimate direction of the company.
§
Decision process. Now the family is fully prepared
to select final planning objectives for business strategy, management
succession, ownership transfer, and family governance.
At this point, other professionals are added to the team
as needed to help implement objectives, prepare estate planning documents,
supervise liquidity management, and provide further assistance in transition
planning and follow-through.
That done, the business owner can start sleeping nights,
knowing that even if immortality is not in the cards, the company will be in
good hands, the family will be taken care of, and the legacy of leadership will
be secure.